Euro Pound (EUR/GBP) Exchange Rate Slides as PM Announces Tory Support for Brexit Deal
The Euro Pound (EUR/GBP) exchange rate slumped to a six month low thanks to a fresh upswing in UK election optimism, leaving the pairing trading at around £0.8535.
Sterling edged higher against the single currency after Prime Minister Boris Johnson announced all Tory Party candidates standing in next month’s election backed his Brexit agreement.
Added to this, at the end of last week there was a further boost of election optimism as the Brexit Party stepped down in further seats.
The Telegraph reported Nigel Farage’s party stood down in 43 non-Conservative seats, 11 of which are held by Labour, and 17 that saw the Tories finish second in the last election.
The Pound edged higher as any move that decreases the chance of the opposition winning the election provides the UK currency with support.
However, any gains may be limited as it has been suggested election news may be distracting from wider market pessimism about GBP’s long-term outlook.
Weak data and the fact the country will only have 11 months to negotiate a trade deal with the European Union next year before the transition period comes to an end has weighed on market sentiment.
Commenting on this, BNY Mellon’s senior currency strategist, Neil Mellor said:
‘My concern is – and this is something possibly the market has thought about – that we’ve got preoccupied with the election but there is still a lot of uncertainty post-election.’
Euro (EUR) Slumps as US-China Talks Dominate Markets
The Euro was left under pressure as markets awaited news of progress between the US and China.
There was a slight upswing of optimism on Sunday after a report from Chinese state news wire, Xinhua that revealed the two sides had ‘constructive talks’ over the weekend.
Commenting on this, currency analyst at MUFG, Lee Hardman noted:
‘Market participants remain optimistic that a partial US-China trade deal will be signed soon and have welcomed tentative signs of economic improvement outside of the US, especially in the Eurozone, both of which are eroding the relative appeal of the US Dollar.’
Meanwhile, European Central Bank (ECB) Vice President Luis de Guindos revealed that weak profitability is a key vulnerability for the bloc’s bank sector.
He also added that low interest rates will dampen lenders’ earning potential, and speaking at a conference this morning said:
‘The recent softening of the macroeconomic growth outlook and the associated low-for-longer interest rate environment are likely to weigh further on their profitability prospects.
‘Many market analysts are concerned about the drag on bank profitability that could result from the negative impact of monetary policy accommodation on net interest margins. And net interest margins are indeed under pressure.’
This likely weighed on the single currency, causing the pairing to slump further at the start of the week.
Euro Pound Outlook: Will Weak Eurozone Construction Weigh on EUR?
Looking ahead to Tuesday, the Euro (EUR) could extend its losses against the Pound (GBP) following the release of the bloc’s construction output.
If it is revealed that construction in the Eurozone has not increased as high as expected, it could weigh on the single currency.
Meanwhile, election optimism is likely to continue supporting Sterling over the course of the week.
If reports reveal the chances of the Conservative Party retaining power have increased once again, it is likely the Euro Pound (EUR/GBP) exchange rate will slump.