The GBP/EUR exchange rate hit a 31-month high this week after it was reported that the Conservative’s had maintained their ten point lead over Labour in the polls ahead next week’s general election.
GBP/EUR Rises as Tories Maintain Lead in Opinion Polls
UK political developments continued to drive the GBP/EUR exchange rate this week, with the Pound hitting a 31-month high on Wednesday due to a growing belief among markets of an outright Conservative victory in next week’s election.
This came after the YouGov poll suggested that the Tories had an 11 percentage point lead on the Labour Party.
However the GBP/EUR exchange rate steadied in the second half of the week after the UK Markit Services PMI for November failed to emerge out of contraction territory.
Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply, said added a ‘chink of light’ had emerged in the UK’s services sector, however, as firms were more hopeful that the ‘trading landscape had to improve in 2020’.
Meanwhile, the Euro was left on the back foot through much of the week due to flagging German industrial figures, with October’s German factory orders falling unexpectedly from 1.5% to -0.4%.
Uncertainties around US-China trade developments also continued to weigh on market confidence in the Euro, with fears that a weakening global economy would further prevent the bloc’s economic recovery in the near-term.
The GBP/EUR exchange rate held steady at the end of the season, after Germany’s industrial production figure for October fell by -1.7% which further dashed hopes for a recovery in the Eurozone’s largest economy.
GBP also lost some of its gains on Friday as markets became increasingly jittery ahead of a debate between Labour leader Jeremy Corbyn and Prime Minister Boris Johnsons, with fears rising that a poor performance from Johnson could jeopardise a Tory majority in the general election.
UK Parliamentary Election in Focus
Looking ahead to next week’s session, UK political will continue to drive the GBP/EUR exchange rate ahead of Thursday’s general election.
As political developments are expected to intensify in the week of the election, Pound traders will be keeping a close eye on the opinion polls, with any signs of the Labour Party edging up in the polls likely leaving markets feeling jittery on heightened political uncertainty.
On the data front, next week will see the final publication of the UK GDP figure along with manufacturing and industrial production figures for October. Any surprise improvements would prove Pound-positive.
Meanwhile, Euro investors will be awaiting Tuesday’s release of the German ZEW Survey of economic sentiment in December, which is expected to rise from -2.1 to 0.5, while Thursday will see the publication of Germany’s inflation data.
Next week will see the UK’s Parliamentary election take centre stage, with any signs of a hung parliament on Thursday seeing the GBP/EUR exchange rate plummet on heightened political uncertainty.