Euro Exchange Rate Forecast: GBP/EUR Losses Predicted After German Election Result

Modified: Monday, 23 September 2013 09:50 BST - Written by John Cameron

STORY LINK Euro Exchange Rate Forecast: GBP/EUR Losses Predicted After German Election Result

The Pound to euro exchange rate (GBP/EUR) has come under sustained selling pressure as this week’s session gets under way thanks to an emphatic result in yesterday’s German Federal election. Elsewhere, the US Dollar remains under pressure as a senior Fed figure suggests a novel policy tweak.

The Pound to Euro exchange rate (GBP/EUR) is currently trading down by 0.18% at 1.1812 GBP/EUR. The Euro to Pound exchange rate is currently trading at 0.8466 EUR/GBP.

The euro opened this week’s session firmly on the front foot after the release of exit polls which suggest that Angela Merkel’s Christian Democrats had gained an emphatic victory in Germany’s Federal Election. The gauge of how the German electorate had cast their ballots found that over 40% of voters had come out in favour of Merkel’s party. The numbers hint that the Christian Democrats and their Bavarian sister party the CSU have come tantalisingly close to earning the first outright majority in the Teutonic state for over 50 years.

Market participants traditionally respond well to a clear-cut result in national elections, so it was no surprise to see the single currency well-supported during early trading last night. However, as is almost invariably the case with popular ballots held under the proportional representation system of voting, yesterday’s Federal election has generated a degree of uncertainty. The result appears to have been nothing short of a catastrophe for the Free Democrats (FDP) who are Merkel’s preferred coalition partner. The FDP appear to have won less than the 5.0% of the vote required to enter parliament in a night described by Christian Lindner, a senior figure in the liberal FDP party, as its ‘bitterest hour’. Merkel now looks likely to be forced into negotiating a coalition with the Social Democrats which won around a quarter of the votes. If these discussions become protracted or difficult then look for the Pound euro exchange rate (GBP/EUR) to head northwards once more.

Elsewhere, Fed-watchers will have sat up and taken note over the weekend when James Bullard, one of the American central bank’s policymakers, discussed the proposal that the Fed should introduce a minimum floor of 1.5% for US inflation, with any move below this level triggering more Quantitative Easing. Such talk of an increase to QE is likely to weigh heavily on the Greenback moving forward and has the potential to send the Pound Dollar exchange rate (GBP/USD) higher.

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