UK Pound To Euro Exchange Rate Forecast: Currency Markets Buy Sterling As Tory Majority Hopes Sees Best GBP/EUR In 31 Weeks – Exchange Rates UK

UK political developments drove the GBP to EUR exchange rate last week, with the Pound Sterling hitting a 31-month best conversion on Wednesday on growing belief that the Tory’s would secure a majority on the 12th December general election.

This came after the YouGov poll suggested that the Tories had an impressive 11 percentage point lead on the Labour Party.

Wednesday also saw the release of the UK’s Markit Services PMI, which beat forecasts and rose from 48.6 to 49.3.

Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply, was upbeat in his assessment, however, commenting:

‘Despite this stagnation, a chink of light emerged amongst the services gloom as optimism for the future was the brightest since July 2019. With the advent of the New Year, firms were in a more hopeful mood that the trading landscape had to improve in 2020.’

The second half of the week saw the Pound lose some of its gains after UK markets began to factor in the possibility of a hung parliament following the general election.

Friday saw the announcement that Prime Minister Boris Johnson would go into a second head-to-head debate with Labour leader Jeremy Corbyn.

This news left UK markets feeling jittery as any signs of poor performance from Johnson could essentially jeopardise the party’s lead in the opinion polls and advance the possibility of a hung parliament on the 12th December.

Euro-Pound Exchange Rate Sinks on Eurozone’s Economic Woes

The Euro (EUR) struggled last week as the Eurozone economy showed no signs of recovery, with Wednesday’s Eurozone Markit PMI Composite failing to boost markets with a minor improvement from 50.3 to 50.6.

Chris Williamson, Chief Business Economist at IHS Markit, commented:

‘The near-stalling of the economy has been accompanied by some of the weakest price pressures we’ve seen in recent years, which threatens to keep inflation well below the ECB’s target in coming months and adds to the likelihood of further policy stimulus early next year.

Thursday also saw Germany’s factory orders figure fall from -5% to -5.5% in October, further dashing hopes of recovery for the Eurozone’s largest economy.

Uncertainties around US-China trade relations also continued to weigh on confidence in the Euro last week, with fears rising that a slowing global economy could prevent the Eurozone’s economic recovery in the near-term.

Meanwhile, Friday saw the release of October’s German industrial production figure, which fell to -1.7% month-to-month while easing to -5.3% on the year.

Outlook for GBP/EUR Exchange Rates

UK political developments will remain in focus this week, with the general election due to take place on Thursday.

As political developments are expected to intensify this week, we should expect some volatility for the Pound.

Any signs of the Labour Party narrowing its gap with the Conservatives in the opinion polls, however, would prove Pound-negative as political uncertainties rise.

In economic news, Monday will see the release of Germany’s trade balance figure for October, which is expected to ease slightly from €19.2 billion to €19 billion.

Tuesday will see the release of Germany’s ZEW Survey into economic sentiment for December, which is forecast to flatline at 0.

In UK data, Tuesday will see the release of the industrial and manufacturing production figure for October, with any signs of improvement providing some uplift for the Pound.

Looking ahead to Thursday, the Euro could sink if the European Central Bank’s (ECB) monetary policy statement is downbeat about the Eurozone’s economy going forward.