Pound to Euro outlook: Election uncertainty and Brexit hold Sterling to a tight trading range

Pound to Dollar Rate Pushed Higher by Risk-on Mood

So far November has failed to produce any fireworks for the pound as we appear to be in ‘wait and see’ mode against the euro. The trading range of 1.15-1.1650 appears to have shortened to less than a cent and is currently moving between 1.1550-1.1635. As the political campaigns begin in the run up to the General Election on December 12th, investors appear to be stuck between a rock and a hard place when deciding on the pounds value.

Goldman Sachs recommendation for Sterling

The recent switch in sentiment, from an undervalued currency at the Summer lows of 1.07 which prompted a buying storm, to the more comfortable 1.15+ has called for Goldman Sachs to update their recommendation to buy the pound as one to hold. Zach Pandl, co-head of Global Foreign Exchange and Emerging Market Strategy highlights that “If the Conservatives gain a stable majority in parliament then little will have changed for sterling other than the sequence of events—i.e. election first then Brexit, rather than the other way around… therefore, if the election seems likely to result in a clear path forward for the Brexit process, we will look to reopen our long recommendation.”

Election uncertainty

At this stage though, it is too early to call the election outcome, and that is the issue. Very early opinion polls suggest that the Conservatives will win a majority, but the opposition parties are unwilling to go down without a fight and with over 50MPs set to stand down, there are some key seats which have become difficult to call, this uncertainty is likely to stunt an improvement in the Pounds value for the time being. This is a temporary malaise as we have less than six weeks before heading to the polls.

In other news for the UK government the House of Commons have now elected Labour’s Sir Lindsay Hoyle as the next Speaker of the House, following John Bercow’s decision to step down after ten years in the role. Recent years of Brexit debate has highlighted how powerful and important this role is within UK politics and Sir Lindsay will be very close to the helm when steering the UK through the next phase of Brexit, whoever the ruling Party may be.

Euro in difficultly: Eurozone economic growth slows for 2nd quarter

For many, the euro is an almost sitting target at the moment, with UK politics dominating market movement on the pair so the current rangebound market is offering some respite for the single currency. Faced with the double-edged sword of Brexit and global trade wars the eurozone has shown slower than expected economic growth which was sharper than expected at only 0.2pc expansion for 2nd quarter GDP, after a 0.4pc expansion in the first three months of the year.

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