Pound to Euro Exchange Rate Melts 

A two Euro coin is pictured next to an English ten Pound note in an illustration
  • Reference rates:
  • Pound to Euro exchange rate: 1 GBP  = 1.1467, day’s best: 1.1551, low: 1.1459
  • Euro to Pound Sterling exchange rate: 0.8720, day’s best: 0.8726, low: 0.8657

Election outcome

Pound Sterling is the worst-performing currency amongst the world’s top twenty currencies on Friday morning on news that the UK Conservative party are on track to lose the upcoming election based on recent momentum in the public’s voting intentions ahead of the June 8 poll.

The GBP/EUR exchange rate is now seen at 1.1475 – a two-month low – with momentum studies suggest it is racing back to the March lows below 1.13.

The January low of 1.1286 is now even feasible.

A YouGov poll out overnight on Thursday, May 26 shows the Conservative’s lead is now down to just 5%.

A uniform swing across the country of this magnitude will see May’s majority cut to just two.

On current trends though Labour’s surging support will see them take a majority.

“It did not rain but pour for Theresa May this morning as the last YouGov poll showed that their lead over Labour narrowed following the Manchester attacks: Conservative 43%, Labour 38%. As a result the pound shrank back against both the USD and the EUR. The worrying thing for Mrs May and all those hoping for a large Conservative majority to help smooth the Brexit process is that the momentum is very much with Labour who are now enjoying their highest level of support since October 2014!” says Jonathan Prior, Head of FX Dealing at Investec in London.

The more likely scenario however is that a coalition government takes office, and based on momentum it would be headed by Jeremy Corbyn.

Pound to euro exchange rate yougov

This turns up the heat under the pot of boiling uncertainty that is it the UK; and as we know the Pound hates uncertainty.

“GBP is back under selling pressure as pre-election polls show a narrowing gap between PM May’s Conservative party and the Labour party. To the extent to which GBP longs were built on the basis of an anticipated large Conservative majority and a lower probability of a cliff-edge Brexit, the rationale is now being questioned ahead of the 8 June vote. EUR/GBP likely to break through the 0.8700 resistance today,” says Petr Krpata, an analyst with ING Bank N.V. in London.

In GBP to EUR terms this means Sterling could fall below €1.1494 support.

The Conservative majority implied by UK bookmakers’ prices has declined to stand at 125, down from a peak of 161 a month ago immediately after the local elections (and may fall again after this morning’s poll).

“We think this is a fair reflection of what is priced into GBP. Averaged against EUR and USD, GBP is down around 1.5% since the Conservatives’ implied majority peaked,” says Adam Cole, Chief Currency Strategist at RBC Capital Markets.

Note that the YouGov polls have tended to show a smaller Conservative lead than most of the other polls in recent weeks and also that YouGov says the swing in the latest poll is probably due to Conservative manifesto commitments, some of which have changed subsequently.

But the bottom line is that the Conservative’s trump card – Theresa May – has seen her popularity plummet and this will certainly weigh on the party.

Theresa May popularity falls

The Manchester bombings could sway opinion.

Typically the incumbent tends to benefit on turmoil such as that witnessed this week, but the opposition parties are using the event to highlight cuts to police services.

This could well heap pressure on May.

As such, uncertainty is the only certainty and the Pound is unlikely to do well in such an environment.

Outlook for GBP/EUR

Concerning the technical outlook, the recent moves suggest the Euro’s bull-trend remains in place.

We did reflect yesterday that perhaps the trend was fading, but the latest fundamental developments on the political front invalidate this view.

“The current bull trend continues,” says Robin Wilkins at Lloyds Bank.

GBP to EUR conversion

The analyst is watching the GBP/EUR push through another intra-range barrier around 1.1494.

Wilkin is looking for a move closer to the 1.1363-1.1235 range lows.

Meanwhile, Ipek Ozkardeskaya, Senior Market Analyst at London Capital Group says the Pound has fallen through 1.1494 resistance and is therefore at risk of falling to its next target at 1.1384 owing to the lack of resistance in the market.

Source: PoundSterling

Leave a Comment


Broker Cyprus TopFX