Brexit and UK politics remained the driving force behind the GBP/EUR exchange rate this week, with the pair accelerating amidst UK election speculation.
Expectations of a Conservative Victory Bolster Sterling
The Pound trended higher this week, with initial gains coming as the EU announced it would grant the UK’s request to extend the Brexit deadline until 31 January.
This gave way to some volatility in the mid-week however, with the confirmation that the UK would be going back to the polls for a general election in December giving rise to some fresh uncertainty.
But the second half of the week brought with it a strong pick-up in the Pound, in response to early polling data revealing the Conservatives enjoy a commanding 15 point lead over Labour.
GBP traders were quick to seize on the data, hoping that a Tory majority would help to break through the Brexit deadlock in parliament.
Meanwhile the Euro was mostly guided by data this week, most notably with the preliminary release of the Eurozone’s third quarter GDP figures.
While these showed growth in the bloc was surprisingly resilient in the previous quarter, holding at 0.2%, it failed to offer much support to the Euro.
This was partly attributed to fears of a looming German recession by also due to accompanying CPI figures which revealed inflation ground even lower in October.
UK Election Campaigns to Officially Get Underway Next Week
Looking ahead to next week, we expect UK politics to continue to act as a major catalyst for the Pound to Euro exchange rate, especially as election campaigning kicks off properly with the suspension of parliament on Wednesday.
This may infuse some fresh volatility into Sterling as parties outline their election manifestos
Also set to influence GBP exchange rates next week will be the Bank of England’s rate decision on Thursday.
No policy changes are expected this month, but the Pound may still face some pressure if the BoE continues to warn of a potential rate cut after Brexit.
Meanwhile the focus for EUR investors is likely to be the latest industrial figures coming from Germany.
These could be key in determining whether Germany’s economy contracted in the third quarter, with another slump in the country’s manufacturing activity in September all but confirming the country sank into a recession.