Pound V euro: GBP exchange rate against EU strengthens as Tories tipped to win election

Pound V euro: GBP exchange rate against EU strengthens as Tories tipped to win election

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Pound exchangeGETTY

The pound began to trend higher against the euro this morning as markets focused on the latest poll

After slumping to a low of €1.142 against the euro yesterday evening, sterling rallied to €1.146 this morning as polls suggest a more favourable outcome for the Tories.

GBP/EUR still remains around half a cent down from Tuesday’s high of €1.149, however.

With the various political parties making a final push for votes on the last day of campaigning ahead of tomorrow’s general election, sterling has begun to creep higher on suggestions that the Conservatives will be able to secure a healthy majority.

The GBP/EUR exchange rate has become increasingly volatile over the past week as recent polls placed the gap between the Conservatives and Labour anywhere between a single percentage point and an eleven-point lead.

However with the majority of polls pointing to a lead for the Tories larger than the seven-points that they secured in the 2015 general election sterling has begun to strengthen.

Investors are hopeful that a larger number of seats in parliament will grant the Prime Minister the mandate to pursue her plans for Brexit and strengthen the government’s position in negotiations when they officially begin later this month.

Pound vs EuroGETTY

Sterling rallied to €1.146 this morning as polls suggest a more favourable outcome for the Tories

Meanwhile the euro was weakened this morning by a worse than expected drop in German factory orders as they contracted -2.1 per cent in April after growing 1.1 per cent in March; a far larger slide than the fall to -0.4 per cent that had been expected.

The accompanying report suggested that the decline came following a marked drop in overseas demand as foreign orders plummeted -3.4 per cent, while a smaller decline in domestic orders also contributed.

While factory orders often fluctuate quite wildly month-to-month, the drop is likely to concern EUR investors as it indicates that Europe’s latest economy may not be as robust as some would hope.

Looking ahead the GBP/EUR exchange rate is likely to remain subdued tomorrow as the UK goes to the polls. However the pound could plummet on Friday if Britain wakes up to find that the election has resulted in a hung parliament.

Meanwhile the euro may tumble on Thursday as the European Central Bank (ECB) gathers for its latest monetary policy meeting.

Analysts forecast that the bank will again vote to leave interest rates at 0.00 per cent and will likely indicate that its ultra-loose monetary policy will remain in place for the foreseeable future.

This will be a disappointment to most investors, who see the recent uptick in Eurozone data as a sign that the bloc has largely recovered from its crisis levels and that the ECB should begin to rein in its stimulus programme.

Any signs that the Governing Council intends to plan the tapering of its enormous quantitative easing programme could boost the Euro, however.

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