The Pound was highly volatile against the Euro last week, in the penultimate days before the 2017 general election. The Pound opened trading at 1.1466 on Monday, but closed against the Euro around 1.1427 on Friday.
This can be considered the calm before the storm, however, with the election itself taking place on Thursday.
Pollsters, pundits and forecasters have been frantically speculating about the odds of victory for each party, but the real ‘proof of the pudding’ will be Thursday’s late-night vote counting and Friday’s final call.
Taking everything into consideration, a Conservative landslide victory is considered the best outcome for Sterling, as it is forecast to boost Theresa May’s negotiating power with the EU.
On the other hand, if it looks like the Conservatives could make a net loss of seats then the GBP EUR exchange rate could slump. This is because back when the election began, it was considered a means for Prime Minister Theresa May to secure Conservative strength before Brexit.
If May ends up with less seats than she started with, then the election ‘project’ will be considered a failure. This could sap trader confidence and lead to a Pound slump, as a smaller Tory majority would make Brexit policies harder to implement.
If the unthinkable happens and the Conservatives are forced out of government then the Pound could hit fresh lows against the Euro. The most likely alternative is a ruling Labour party, but this is considered difficult because of Labour reluctance to forming any kind of coalition.
Future Euro movement could come from the European Central Bank (ECB), specifically its policy decisions. Despite recent unemployment rate drops, the ECB is expected to leave interest rates on hold again in June.
Given this outlook, comments from ECB officials will be more likely to trigger Euro movement. Previously, the ECB’s Sabine Lautenschlaeger and Jens Weidmann have stated that the Eurozone economy is improving, which is the first step towards tightening monetary policy and potentially raising interest rates.
Additionally, Bloomberg economists highlight that;
‘Traders have been expecting that the ECB may, as early as next week, adjust its language on the economic outlook to reflect a recently improved economic picture’.
If it looks like a near-term Eurozone interest rate hike is on the way then the Euro could rally, but this all depends on what ever-influential ECB President Draghi has to say.
Recent Interbank GBP EUR Exchange Rates
At the time of writing, the Pound to Euro (GBP EUR) exchange rate was trading at 1.1432 and the Euro to Pound (EUR GBP) exchange rate was trading at 0.8748.
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