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GBP to Euro Exchange Rate Forecast to Slide On UKIP Election Win

May 27, 2014 - Written by David Woodsmith

GBP to Euro Exchange Rate Forecast to Slide On UKIP Election Win - Light trading volumes during yesterday’s session ensured that there was relatively little in the way of movement for the Pound Sterling currency pairs. However, the emergence of results from the EU-wide elections to decide on each of the 28 nation state’s Members of the European Parliament in Brussels had an effect on the Pound Sterling to Euro exchange rate (GBP/EUR).

The Pound to Euro exchange rate had started out the week’s session trading marginally below its 16-month high just short of the 1.2400 GBP/EUR level, but by the final stretch of yesterday’s Frankfurt session, the pair was changing hands at 1.2341. The shift lower was driven by investors’ reaction to the European election results which saw an increase in the right-wing anti-EU parties record significant gains in several pockets of the region. The French National Front party, led by Marine Le Pen, unexpectedly won the largest number of seats in the eurozone second largest nation, but the positive effect which this wrought on the GBP EUR exchange rate was more than cancelled out by a stunning victory in the British version of the elections by the staunchly anti-EU UK Independence Party (UKIP), which also polled the largest share of the popular vote.

Market participants were aware of some dissenting voices in continental Europe ahead of last week’s vote, and this was largely priced-in to the relative value of the euro at the end of last week’s session. However, the game-changing performance from UKIP appears to have caught the eye of investors, increasing the volume of market whispers regarding a potential ‘Brexit’ (British exit from the European Union).

British Prime Minister David Cameron has immediately faced calls from his own backbenchers to bring forward a proposed in/out referendum on the UK’s continued involvement in the EU project to 2016, should his Conservative party win an outright majority in next year’s domestic general election, following the election results. Although UKIP stands no chance of winning any more than a handful of seats in next year’s popular ballot, largely due to Britain’s ‘First Past the Post’ electoral system, the effect which the party’s hugely increased popularity has on Britain’s mainstream parties may see the UK adopt a more isolationist approach to global affairs. The upshot of such an occurrence would be likely to send the Pound Sterling euro exchange rate GBP/EUR lower once again.

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