Hopes that the Conservatives could win the majority they needed “to get Brexit done” caused the pound to strengthen by about 2% during the six-week campaign period. Having edged over €1.19 against the euro during election week, for the first time since May 2017, the pound’s upward march has gathered pace in the wake of the Conservatives huge victory.
Sterling Reacts Positively to Conservative Majority Government
In the immediate aftermath of his triumph, Mr Johnson stated that the result meant the Conservative government “has been given a powerful new mandate, to get Brexit done”. This was music to the pound’s ears, which surged to a three-and-a-half-year high against the euro, taking it over 1.20. The market reaction isn’t only a reflection of the result, but the nature of the result; a huge majority that gives the prime minister room for manoeuvre when delivering his Brexit pledge in the coming days and weeks.
It was the perfect outcome for the GBP to EUR rate, which has suffered at the hands of Brexit uncertainty since the 2016 EU referendum. With a big win for the Conservatives pushing a no-deal Brexit off the table, the financial markets were able to breathe a sigh of relief.
What Will the Conservative’s Majority Mean for Brexit and the Pound v Euro Rate?
Armed with the parliamentary platform he needs, there is little doubt that Mr Johnson will be able to “get Brexit done” by the end of January. This is likely to give the pound plenty of strength in the short-term. However, that doesn’t mean Brexit is done in a practical sense, with lots of key issues – such as trade – still to be ironed out.
Like all currencies, the pound craves political clarity and delivering Brexit would go a long way to achieving that. However, could its short-term gains be undone by the appearance of yet uncertainty on the horizon, as the true complexity of our departure from the EU unravels? Time will tell.
In the wake of the “Brexit election” it’s easy to forget that our departure from the EU isn’t the only factor that influences the value of the pound. Take the Conservative manifesto for example: the party has pledged to increase public spending – by around several billion not several tens of billions – and introduce more tax. Although this equates to less than 1% of the economy. The pound’s performance against the euro is obviously improved by domestic economic health. We will have to wait and see how the government’s tax and spending plans impact inflation, GDP and ultimately monetary policy.
If you would like to learn more about factors influencing GBP/EUR exchange rates for an upcoming currency transfer, feel free to contact myself, Jonathan Watson, using the form below.