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Sterling Vs Euro Near 6-Month High, on Tory Election Win Odds

Market CommentarySterling Vs Euro Near 6-Month High, on Tory Election Win Odds
Sterling Vs Euro Near 6-Month High, on Tory Election Win Odds

The sterling vs euro interbank exchange rate stands at 1.1675 today. This is just 0.42% or 0.5 cents below its highest in over six months, or since May 6th, reached this November 18th, at 1.1725.

By comparison, back on August 10th, the pound to euro interbank exchange rate was as low as 1.0646. So sterling has since risen versus the common currency by 9.66%, or by over 10 cents.

This could benefit you, when you transfer money to Spain or France from the UK, because you may get a higher euro total, compared to if you’d exchanged currencies in the last six months.

In turn, this might make it more affordable for you, if you’re buying property abroad in the Mediterranean, or if you’re a UK business owner making international payments to a Eurozone supplier.

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

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

One reason why the GBP stands near this six-month high versus the EUR is because the markets continue to think that the Tories will form a stable government, after next month’s UK election.

However, looking over the next three weeks, sterling’s value against the euro could be affected, because this week’s debate between Boris Johnson and Jeremy Corbyn was considered a draw.

In addition, looking forward, the sterling vs euro interbank exchange rate may be influenced, by European Central Bank (ECB) executives’ comments about the Eurozone’s economic outlook too.

Pound Euro Exchange Rate Near 6-Month High, on Odds of Tory Election Win

As I mention, one reason why the sterling vs euro interbank exchange rate stands near this six-month high today is because the financial markets continue to think that the Conservative Party will win a majority at December 12th’s UK general election.

It’s hoped that this will provide the UK with a stable government, to effectively pass laws, resolve Brexit, and agree a future EU trade deal, according to Reuters.

In particular, the world’s money managers continue to factor in a 65.8% chance that the Tories will win a majority of MPs in the House of Commons, at next month’s vote.

This suggests that, according to global money managers, there’s a 2/3rd probability that Prime Minister Boris Johnson’s party will be able to govern, without relying on smaller parties or on opposition MPs’ votes.

In general, the financial markets want the UK to have a stable, majority government. This is because, since 2017, both under ex-PM Theresa May and incumbent Mr. Johnson, the Tories have governed with a minority of MPs.

This has resulted in deadlock, with no single party able to pass laws, Brexit in limbo, and the UK’s domestic priorities such as schools and hospitals up-in-the-air.

As a result, the world’s investors want one single party to win next month’s election, to unlock the UK’s political situation.

In particular, the markets want to see a quick resolution to Brexit, after more than three-and-a-half years of talks, enabling the UK to negotiate its future trade deal with the EU, while unlocking vital public investment in transport infrastructure and NHS spending.

Money managers want there to be a clear victory in next month’s vote, first because this will provide clarity for the UK’s businesses about the future.

Once CEOs know which party is in charge, and what the UK’s policies are, they may be more likely to hire new staff or buy new equipment. In turn, this may accelerate the UK’s economic growth, which has slowed since the Brexit vote.

Second, the financial markets want next month’s election to produce a clear result, because in these circumstances, there are likely to be more investment opportunities in the UK.

In turn, this could encourage money managers to buy GBP-denominated financial assets, to make the most of these opportunities. This tends to increase demand for sterling, which in turn raises its value.

Sterling Vs Euro Could Be Affected, as Election Debate Considered A Draw

However, looking over the next three weeks until the UK’s election on December 12th, the pound to euro interbank exchange rate may be affected, because this week’s debate between Tory leader Mr. Johnson and his Labour counterpart Jeremy Corbyn was considered a draw.

This has sowed doubts that next month’s vote may not provide a decisive outcome, in which one party wins.

In particular, following both opinion polls and expert observers’ analyses following Tuesday night’s debate, it’s considered that Mr. Johnson and Mr. Corbyn tied.

For example, a survey by trusted pollsters YouGov found that, of 1,600 people, 51% thought that the Conservative leader had won, while 49% favoured the Labour leader’s performance. So neither leader really stood out, reports The Telegraph newspaper.

Following the debate, Piotr Matys at Rabobank said that “The debate was not a game changer.” Also, Mathias Van der Jeug at KBC Markets said that “The debate was almost a tie, a poll showed, but offered little news to the public.”

Looking to the next three weeks until polling day, this draw may affect the sterling vs euro interbank exchange rate, because the financial markets would arguably have preferred it if there’d been a clear winner.

This is because, in these circumstances, we’d know which political party had gained a polling advantage, which would enable investors to predict who’ll triumph next month.

As it stands, the Conservatives continue to lead in most opinion polls, with 45% according to YouGov’s latest survey, compared to Labour’s 28%.

Traditionally, a 10% lead has been enough for the first-place political party to win a majority of MPs in Parliament. However, following this week’s inconclusive debate, the markets may now start to watch the opinion polls, for signs of change.

The world’s money managers are concerned that, if no single political party wins next month’s election, this could result in another ‘hung’ Parliament.

This is when no single party has a majority of MPs, making it tough to pass laws without opposition support, and often causing deadlock, as we’ve seen in recent months. In this case, there’d be less clarity for UK businesses and investors.

To be specific, the financial markets are concerned that, if there’s a ‘hung’ Parliament, the UK may run up against its new Brexit deadline, of January 31st.

In these circumstances, there may be another tussle about whether the UK should exit with ‘No Deal’, or if Parliament may oblige the PM to request a third extension. This would create greater uncertainty, thereby affecting sterling.

GBP to EUR Rate May Be Influenced, by ECB Policymakers’ Comments

Moreover, looking forward, the sterling vs euro interbank exchange rate may be affected by European Central Bank (ECB) policymakers’ remarks.

In particular, this week a number of the Eurozone central bank’s executives have commented that the economy is slowing, though unlikely to enter recession, while ECB President Christine Lagarde is due to give a speech tomorrow.

To begin with, ECB Chief Economist Philip Lane told Italian newspaper La Repubblica this week that “The economy is growing less quickly than what we hoped. The dynamic is disappointing but not negative. We expect a recovery in the next year or two.”

Mr. Lane also remarked that he doesn’t expect the Eurozone to enter recession, although the bloc’s 1% inflation is “unsatisfactory”.

Meanwhile, Gabriel Makhlouf, Ireland’s new central bank governor and ECB policymaker, said in a speech at the Waterford Institute of Technology, Ireland that “In the euro area we are also seeing protracted weakness,” reports Reuters.

However, “both hard and soft data for the second half of the year point to continuing, moderate growth” said Mr. Makhlouf, so the odds of a recession remain low.

Ireland’s central bank governor added that “The trade tensions I mentioned and the uncertainty that this causes have had an effect on the manufacturing sector, particularly in Germany.”

“But, despite this slowdown, the services and construction sectors continue to support growth. The labour market has also held up". So Mr. Makhlouf has highlighted the Eurozone’s ongoing resilience.

Mr. Lane’s and Mr. Makhlouf’s comments this week acknowledge the Eurozone’s economic slowdown in 2019. In particular, the bloc has decelerated this year, in part because of the US/China trade war.

Although the Eurozone isn’t directly involved in this dispute, it’s tipped Germany’s vast factory sector into recession. Yet in spite of this, the ECB executives still forecast continued growth.

Turning to tomorrow, new ECB President Christine Lagarde is scheduled to give a speech, in which she may reveal her thoughts about the Eurozone’s monetary policy, and future direction.

It’s thought that Ms. Lagarde will continue former President Mario Draghi’s policy of low interest rates and extraordinary monetary stimulus. So Ms. Lagarde’s speech could affect the value of the euro.

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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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