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Sterling Vs Euro Near 31-Month High, as YouGov Signals Tory Win

Market CommentarySterling Vs Euro Near 31-Month High, as YouGov Signals Tory Win
Sterling Vs Euro Near 31-Month High, as YouGov Signals Tory Win
Pound Euro Exchange.

The sterling vs euro interbank exchange rate stands at 1.1736 today at the time of writing. This is just 0.23% below the pound’s 31-month high versus the euro, its highest since May 14th 2017, reached this Wednesday 27th, at 1.1764.

By contrast, sterling was as low as 1.0646 against the Eurozone’s common currency on August 10th 2019. So it’s since strengthened by 10.23%, or by close to 11 cents.

This could benefit you, when you transfer money to Spain or France from the UK, because when you buy euros, you may receive a higher total compared to over the last 31 months.

In turn, this may make it more affordable for you, if you need currency for tuition fees, if your son or daughter is studying at a European university, or to make regular payments.

To stay updated with the sterling vs euro interbank exchange rate, visit Pure FX’s Rates & Tools page. Here, scroll down to the Latest Market Rates Widget, to see this week’s interbank rates.

Also, to learn what’s influencing the value of the pound against the euro on the interbank market, go to our GBP to EUR Exchange Rate Updates page. Here, just click on the latest article.

One reason why the GBP to EUR interbank exchange rate stands near this 31-month high, is because the Conservatives may win next month’s UK election, said a trusted poll on Wednesday.

In addition, another factor why the sterling vs euro interbank exchange rate has gained, is because UK business confidence has hit its highest since January, according to a new Lloyds survey.

However, looking over the next fortnight until polling day, the pound to euro interbank exchange rate may be affected, by the opinion polls, and the closing gap between the Tories and Labour.

GBP to EUR Near 31-Month High, as Tories May Win Election, Says YouGov

As I mention, one reason why the pound to euro interbank exchange rate stands near this 31-month high today is because, according to a trusted survey by polling company YouGov this Wednesday 27th, the Conservative Party may win a majority of MPs at the UK’s election on December 12th.

It’s thought that this may add stability to the UK’s political and economic outlook.

To explain, according to YouGov’s MRP (Multilevel Regression and Post-stratification) poll earlier this week, Prime Minister (PM) Boris Johnson’s party may win a majority of 68 seats.

In total, the MRP forecasts that the Tories may win 359 MPs out of Parliament’s 650, while Labour might win 211. This would give the Tories a majority to govern in the House of Commons.

YouGov’s MRP poll is respected by the financial markets, because it’s the only electoral survey that correctly forecast that, in 2017’s general election, ex-PM Theresa May would lose her majority of MPs.

Reportedly, the MRP is more accurate than traditional polls, because rather than simply taking a survey of voters, it maps people’s voting intentions into each parties’ seats in Parliament.

The MRP has strengthened sterling this week, because in general, the world’s money managers want the UK to have a stable, majority government.

After all, the UK has been subject to both Brexit uncertainty and multiple elections or referendums in recent years, thus discouraging businesses and consumers from spending, and slowing the UK’s GDP (Gross Domestic Product) growth.

By comparison, if a single political party wins the December 12th election, they’ll be able to form a stable government, that can pass laws without other parties’ support, or opposition MPs’ amendments.

In turn, this may enable the UK to at long last finalise Brexit, start negotiating the future trade deal with the EU, and work on the UK’s domestic priorities, like schools and roads.

For example, Michael Cahill, an analyst with Goldman Sachs, says that "If the current Conservative government were to return with a workable majority, then the Brexit process would move forward faster, with PM Johnson’s deal likely to be passed soon after the election.”

This would provide stability and predictability to the UK’s outlook, and has thereby strengthened the pound.

Sterling Vs Euro Gains, as UK Business Confidence at 11-Month High, Says Lloyds

Moreover, another factor why the pound to euro interbank exchange rate has neared this 31-month high today is because, according to Lloyds’ monthly Business Barometer this week, UK business confidence has hit its highest since January 2019.

When UK businesses feel more upbeat, they’re likelier to hire new staff and invest, which in turn supports the UK’s economic growth.

In particular, Lloyds’ measure of economic optimism has risen for the third consecutive month in November, by 7%, up to 9%. This follows October’s 8% gain.

In addition, overall UK business confidence is up by 3% this month, to 9%, although firms’ prospects for the coming year are down slightly by 2%, to 12%. Also, firms’ hiring intentions are up by 2%, to reach a level of 5%.

According to Lloyds’ respected monthly survey, British companies feel more optimistic, because of the possibility that Brexit will be resolved in early 2020. If next month’s UK election delivers a decisive result, then Brexit might be finalised before the current deadline of January 31st.

This will provide greater clarity to UK businesses about our trading relationship with the EU, for next year.

"The improvement in overall confidence coincided with a less negative assessment of the impact of Brexit on business prospects,” says Lloyds about this data.

Notably, businesses across the UK felt more optimistic in November, and across most sectors. The West Midlands was the most upbeat region, at 24%, while London firms’ optimism increased by 19% this month, to reach 20%.

Meanwhile, the UK’s services, manufacturing and retail sectors all recorded higher optimism, notably in financial and professional services firms.

In part, this may reflect reports this week that the USA and China may sign their “first phase” trade pact, further reducing the world’s economic uncertainty. So overall, Lloyds’ upbeat report has also contributed to strengthen the pound.

Pound to Euro Rate May Be Affected, as Polls Show Race Tightening

However, turning to the little-less-than two weeks until the UK’s election on December 12th, the sterling vs euro interbank exchange rate may be affected, by the shifting opinion polls.

In particular, besides YouGov’s respected MRP this week, other surveys have shown that the gap between the first-place Conservatives and official opposition Labour Party is increasingly shrinking.

For example, according to ICM’s poll this Monday 25th, the Tories’ lead over Labour is down to 7%. Meanwhile, a Kantar survey this Tuesday revealed that the Conservatives’ advantage has dropped by 7% in a week, from 18% to 11%.

Lastly, a Savanta ComRes study yesterday also showed that PM Johnson party’s lead is at 7%, with Labour especially rising in voting intentions.

It’s thought that Labour is rising in these opinion polls, because last week leader Jeremy Corbyn revealed the left-wing party’s campaign manifesto.

This included promises to greatly increase UK public investment, renationalise industries like rail and water, and offer free broadband for all. It appears that these policies have chimed with some voters, thereby increasing Labour’s support.

However, in general, the financial markets are worried about the possibility that next month’s election won’t deliver a decisive result. To be specific, traditionally the first-place political party needs at least a 10% lead in the polls to win a majority of MPs in Parliament.

So the Conservatives’ shrinking lead raises the probability that, on December 13th, there may be a ‘hung’ Parliament.

A ‘hung’ Parliament is when a government is formed, yet no single political party has a majority of MPs. In this case, it’s difficult for the government to pass laws without other parties’ support, and the opposition can take control of Parliament’s legislative agenda.

PM Johnson has lived with these circumstances for several months, and as we’ve seen, it’s led to domestic legislative and Brexit deadlock.

Elsewhere, it’s worth noting that, yesterday, PM Johnson’s Chief Strategist Dominic Cummings warned that the election is closer than it looks. Writing in his blog, Mr. Cummings sent up a “bat signal” that says:

“Trust me, as someone who has worked on lots of campaigns, things are MUCH tighter than they seem and there is a very real possibility of a hung parliament.”

Moreover, although this Wednesday’s YouGov MRP poll suggests that the Tories may win a majority of MPs, it’s useful to note that, in 2017, the MRP was published two days before the election, whereas this time it’s been released two weeks ahead.

So this may affect the MRP poll’s reliability, especially when surveys by other companies suggest that the Conservatives’ lead is declining.

For example, Mr. Cahill at Goldman Sachs says that "A hung parliament would prolong the uncertainty and once again raise the tail risks of both “Remain” and “no deal.”

This suggests that, if next month’s election doesn’t provide a definitive result, the UK might again run up against its Brexit deadline. This would raise the risk of another extension or ‘No Deal’, and may affect sterling.

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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or Contact Us.

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