GBP EUR Exchange Rate Remains Under Pressure in Final Days of UK Election Campaign

June 6, 2017 - Written by Frank Davies

STORY LINK GBP EUR Exchange Rate Remains Under Pressure in Final Days of UK Election Campaign

As May’s BRC like-for-like sales data proved discouraging the Pound Euro exchange rate weakened, reversing some of the week’s earlier gains.

Confidence in the Pound remains somewhat limited ahead of Thursday’s general election, even though the odds continue to favour a Conservative victory.

With opinion polls still pointing towards a narrowing of the Conservative lead over Labour, however, the prospect of a hung parliament cannot be entirely ruled out at this stage.

This is likely to keep the GBP EUR exchange rate biased to the downside in the short term, with the pairing expected to see increased volatility once the ultimate results of the election become clear.

The latest Halifax house price index figures are unlikely to offer any particular support to Sterling on Wednesday, with prices thought to have contracted further on the month.

Further indication that the UK housing market is losing momentum could prompt investors to continue piling out of the Pound, with the uncertainty of Brexit looking set to weigh on consumer confidence in the coming months.

If the outcome of the election is seen to raise the likelihood of a fraught Brexit process the appeal of Sterling is likely to slump sharply, leaving the GBP EUR exchange rate vulnerable to further downside pressure.

The Euro struggled to capitalise on market nerves ahead of the UK election thanks to a rather muted raft of Eurozone data.

Retail sales slowed to just 0.1% on the month in April, with March’s figure also being revised lower to suggest that consumer sentiment in the currency union was weaker than previously thought.

A general sense of market risk appetite also limited the appeal of the single currency, with investors inclined to favour higher-yielding currencies at this juncture.

Demand for the Euro is likely to remain muted ahead of the European Central Bank’s (ECB) June policy meeting, with President Mario Draghi expected to talk down the prospect of any tapering of the quantitative easing program.

Even so, as analysts at Brown Brothers Harriman noted:

‘The Euro is benefiting from the lifting of political uncertainty in Europe and increasing questions about US politics. At the same time, more scepticism about the health of the US economy and the ability of President Trump to enact his economic agenda also help underpin the Euro through the interest rate and portfolio flow channels.’

If US data continues to disappoint, reducing the odds of the Federal Reserve pursuing a more aggressive pace of monetary tightening, the GBP EUR exchange rate could struggle to return to a stronger footing.

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TAGS: Pound Euro Forecasts