EUR GBP Exchange Rate Favourable during Post-Election Turmoil

June 9, 2017 - Written by Minesh Chaudhari

STORY LINK EUR GBP Exchange Rate Favourable during Post-Election Turmoil

The Euro’s movement against the Pound today has mainly been determined by GBP fluctuations. Eurozone domestic data has been relatively poor, showing a falling German trade surplus as well as a still-high level of Greek inflation.

Euro traders remain on edge after Thursday’s European Central Bank (ECB) meeting, which failed to remove concerns about future ECB policy.

Although policymakers no longer considered cutting interest rates, an inflation outlook downgrade meant that the coveted rate hike could still be a long way off.

After this week’s drama, the Euro could be in for another bout of near-term volatility. Sunday will bring the first round of French parliamentary voting, where President Emmanuel Macron hopes to gain a majority.

Polls are already forecasting a large majority for the new President; such a result could boost the Euro as Macron’s centrist policies have been received favourably by economists.

In direct data news, next week will bring German and Eurozone confidence scores on Tuesday. Later on will be Thursday’s trade balance and Friday’s inflation rate stats.

If inflation rises considerably then the Euro could advance, as such movement would go against the ECB’s recent pessimistic forecasts.

The Pound has recently risen against the Euro but remains in low demand, having dropped sharply when the hung parliament was announced.

This has since been resolved, with the Conservatives aiming to rule with an informal agreement with the Democratic Unionist Party (DUP).

This would form a working majority for the Conservatives, but still represents an embarrassing turn of events for the party that had hoped to strengthen its seat count instead of weakening it.

Looking ahead, the Pound may be able to rise against the Euro next week if turbulence from the election begins to fade away.

Tuesday will bring a key inflation rate measure for May, which previously showed an alarming 2.7% rise. Given that the BoE is not forecast to raise interest rates for a while, a dip in inflation may reassure traders. Falling inflation would lessen the wage squeeze on UK consumers, which could translate to increased retail activity in the future.

Wages will be in the spotlight on Wednesday, when May’s average earnings will be announced alongside the April unemployment rate. If earnings fail to rise and close the gap on inflation then the Pound could drop, while a similar outcome is likely on rising unemployment.

Later in the week, the Bank of England (BoE) will make its interest rate decision for June. Given the current economic unrest and political turmoil, it is highly probable that the BoE will leave interest rates on hold.

If BoE officials express optimism about the future of the new government, as well as incoming Brexit talks, then the Pound could advance against the Euro.

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TAGS: Euro Forecasts Euro Pound Forecasts