Pound to Euro Forecast: How much impact will the General Election have?

GBP EUR Exchange Rate: The Week Ahead August 15th

The pound to Euro exchange rate has traded in a tighter range after the UK general election was confirmed for 12th December 2019. This has now become the next major focal point for GBP/EUR exchange rates as the outcome of that election will carry far reaching consequences for the governance of the country and of course the path for Brexit. Rates for GBP vs EUR currently sit at 1.16 for the pair and these coming weeks may result in considerable volatility.

What could happen to GBP/EUR rates after the election?

As far as Brexit is concerned in this election the Conservatives seek to deliver on Brexit with the deal that has been agreed with the EU. The Liberal Democrats seek to cancel Brexit altogether by revoking Article 50 whilst the proposition from the Labour party is to negotiate a new deal which will keep Britain in a customs union and then have another referendum on that new deal. These are the main choices the electorate must vote on as this election is expected to revolve very much about Brexit. Expect high volatility for GBP to EUR exchange rates as those polls change in the weeks to come. The stakes are high. A major win or significant majority for a party or coalition could result in a major market movement in the early hours of 13th December when the votes have been counted. Those looking to buy or sell Euros would be wise to plan around this particular event.

The Bank of England meeting yesterday saw two members of the Monetary Policy Committee vote for an interest rate cut which surprised the markets. Concerns over Brexit have persuaded Michael Saunders and Jonathan Haskel to cut interest rates back to 0.5%. The vote was split 7-2 to hold rates but the shift towards further cuts signals that there are some concerns as the to the strength of the British economy going forward.

Warnings over Italy’s deficit

Meanwhile in Italy the European Council has warned that Italy’s budget deficit will keep growing which could result in a another clash between Italy and Brussels. Italy is expected to keep the budget deficit within 2% as per the EU’s guidelines and if it is unable to do so it may be required to make structural reforms, something that Italy has so far proven reluctant to do.

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