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GBP EUR Exchange Rate Rallies as Theresa May Calls for Snap Election

April 18, 2017 - Written by Frank Davies

The Pound Euro (GBP EUR) exchange rate rallied from a brief drop this morning as Prime Minister Theresa May called for a snap General Election.

Pound Euro (GBP EUR) Jumps on Election Announcement

Sterling rose sharply against the Euro this morning following the announcement from Theresa May that she wished to call for a General election in June.

After initially tumbling as some observers speculated that the PM’s surprise statement may have been to announce that she was stepping down, GBP EUR leapt by around a cent as markets believed that a snap election would help to strengthen the government’s position ahead of Brexit negotiations.

Analysts believe that a the Conservatives are likely to gain a solid majority in the election as a divided Labour party is likely to offer little resistance for the Tories, providing Theresa May the mandate to pursue her plans to leave the single market.

Dean Turner, an economist at UBS Wealth Management said;

‘We believe it is highly likely the Conservatives will increase their majority and firm up the future direction of government policy, particularly in regard to Brexit.’

While possibly upsetting some investors by making a ‘hard Brexit’ more likely, the Pound was strengthened by the news as markets believe it will offer a more stable front in negotiations and gain Theresa May more respect as an elected leader.

Euro Softens in Run up to French Elections

The Euro was also weakened this morning in growing concerns over the French election as recent polls cast greater uncertainty over the process, with most now suggesting that any of the top four candidates have the potential to make it to the second round of voting.

The recent surge in support for radical left-wing candidate Jean-Luc Mélenchon has considerably shaken up the race, with analysts just a couple of weeks ago claiming with some certainty that the first round would see centrist Emmanuel Macron and far-right Eurosceptic Marine Le Pen advance to the second round.

Particularly worrying for investors is the potential for a Le Pen, Mélenchon run off as both candidates campaign with an anti-EU agenda, prompting fears of a possible ‘Frexit’, which could have disastrous consequences for the Euro.

GBP EUR Exchange Rate Forecast: Eurozone Inflation Ahead

The GBP EUR may advance even further on Wednesday as the Eurozone releases its latest CPI data, which is expected to report that inflation tumbled from 2% to 1.5% in March following a dramatic drop in fuel prices.

The drop in inflation is likely to weigh on the Euro as markets had hoped that the European Central Bank (ECB) may have begun to discuss the possibility of tightening monetary policy if inflation remained within the bank’s target rate of 2%.

Meanwhile a lull in domestic data will likely leave Sterling sentiment to be driven by the PM’s recent call for a general election, with parliament set to vote on the proposed election tomorrow.

Current Interbank Exchange Rates

At the time of writing the GBP EUR exchange rate was trending around 1.19 and the EUR GBP exchange rate was trending around 0.84.
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