Euro Pound Sterling (EUR/GBP) Exchange Rate Slides on Brexit Optimism
The Euro Pound Sterling (EUR/GBP) exchange rate slumped this afternoon, leaving the pairing trading at around £0.8416.
The Pound edged higher against the Euro on Wednesday, with just a day until the general election.
Sterling sentiment took a hit after the closely-watched YouGov poll revealed the Prime Minister was likely to win a majority of 28, revising down earlier forecasts of a 68 seat majority.
While the model predicted a majority for the Conservative Party, YouGov noted that it could not rule out a hung parliament.
This did little to stop GBP rising against the single currency as traders remained optimistic that Boris Johnson would secure a majority.
However, polls could be inaccurate and commenting on this, TorFX Head of Trading, Adam Solomon stated:
‘We remind ourselves that the polls were wrong in 2016 and again in 2017 and the opinion polls this time have been consistently showing a Conservative majority as the most likely scenario. And yet, a key poll last night showed Boris Johnson’s lead over Jeremy Corbyn has been slashed dramatically with the Tories set to win 339 seats. Still enough for a majority, yes, but the gap is shrinking to levels that will make investors twitchy. We have evidence of that already. Overnight, the Pound has dropped 0.4% against the Euro and U.S Dollar with an even bigger move versus the commodity driven currencies. We have to bear in mind that the Pound was trading at 1.10 versus the Euro in early October and 1.20 versus the U.S Dollar. The extent of the move higher has been built on confidence of a Tory victory and that is something that is not guaranteed by any stretch.’
Euro (EUR) Slips Ahead of ECB Meeting
The single currency remained under pressure on Wednesday as markets eagerly awaited the European Central Bank’s (ECB) monetary policy meeting.
While the bank is unlikely to announce any policy changes, markets will look to see how new ECB head, Christine Lagarde will communicate.
As the new head of the bank, Lagarde has many challenges ahead, including managing the dissent within the ECB caused by the latest round of easing.
The latest stimulus policy launched by predecessor Mario Draghi in his final months in office caused tension between policymakers and markets will be looking to see how Lagarde is likely to deal with this.
Commenting on the upcoming meeting, Rainer Guntermann, Commerzbank rates strategist said:
‘Expectations for policy action from the ECB and Fed are subdued. Lagarde’s communication style will be watched closely, but that’s unlikely to lead to any repricing in bond markets.’
Euro Pound Outlook: Will a Conservative Majority Buoy GBP?
Looking ahead to Thursday morning, the Euro (EUR) could slide further against the Pound (GBP) following the release of Germany’s inflation data.
If November’s data reveals monthly consumer prices slumped more than forecast in the bloc’s largest economy, the single currency will likely extend losses.
Meanwhile, Sterling exchange rates are likely to be volatile at the end of the week as the UK election results are released.
If the Conservatives are able to form a majority government it will likely provide GBP with support, and cause the Euro Pound (EUR/GBP) exchange rate to fall.
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TAGS: Euro Pound Forecasts