The pound euro exchange rate closed this week largely unchanged as the UK general election concluded with a widely expected Labour victory.
Pound stable as Labour secures massive majority
The pound euro exchange rate initially stumbled this week. The single currency rallied following the first round of the French election after the far-right National Rally party performed below expectations.
However, the euro was unable to hold on to these gains for long. EUR exchange rates quickly fell after data showed Eurozone inflation slowed in June, stoking bets for additional interest rate cuts from the European Central Bank (ECB) in the second half of the year.
At the same time, after initially facing resistance following weaker-than-expected growth in the UK factory sector, the pound was quickly able to rebound as market risk appetite improved.
Sterling then consolidated these gains in the middle of the week in response to an upwardly revised UK services PMI. While the euro was undermined by a larger-than-expected drop in Eurozone produce prices.
The latter half of the week was then dominated by the UK general election, although any resulting movement in the pound proved limited as markets had already thoroughly priced in a Labour landslide.
French election relief to lift the euro?
The second round of the French election will be in the spotlight at the start of next week. EUR investors will be hoping that National Rally will be denied a majority to prevent the far-right party from pursuing an unsustainable fiscal policy.
Meanwhile, the pound could see some movement as Keir Starmer’s Labour party assumes office and starts to outline their policy priorities. If the new government is seen to be prioritising growth then Sterling sentiment is likely to be positive.
In terms of data the focus for GBP investors will be on the UK’s latest GDP figures. May’s monthly growth figures are forecast to report a modest expansion in the UK economy, potentially offering some support to Sterling in the latter half of the week.
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