The sterling vs euro interbank exchange rate has reached 1.2081 today. This is its highest in 39 months, or since September 3rd 2016. By contrast, back on August 10th this year, the pound was as low as 1.0646 versus the Eurozone’s common currency. So it’s since strengthened by 13.47%, or by over 14 cents.
The pound has risen in value against the euro, in part because Prime Minister Boris Johnson’s Conservative Party has won a clear majority, at the UK’s general election.
At the time of writing, PM Johnson’s party has won 364 constituencies, a gain of 66 seats from the 2017 election, while Jeremy Corbyn’s opposition Labour has lost 42 MPs, to 203 in total.
With this majority, it’s thought that PM Johnson will quickly ratify Brexit, perhaps next week. This will help put an end to years of uncertainty in the UK’s economic and political outlook, and may encourage businesses to hire and invest next year. As a result, the Conservatives’ win has lifted the pound.
Corbyn to Resign, Swinson Loses Seat, Future EU Trade Deal in Focus
The UK general election looks set to greatly shift the country’s politics. For example, Mr. Corbyn has announced that he’ll resign as leader of the Labour Party, while Liberal Democrat leader Jo Swinson has lost her East Dunbartonshire constituency.
Turning to the future, PM Johnson could soon begin to negotiate the UK’s future trade deal with the EU. However, while such trade agreements traditionally take six or seven years to sign, the UK has a deadline of December 31st next year.
So this risks a repeat of the Brexit experience, in which the UK must repeatedly ask for deadline extensions, or risk going without a deal. This might affect sterling in the coming months.
Next Week Packed for UK Economic Data
Turning to next week, there’s a packed schedule for UK economic data. This includes IHS Markit’s “flash” UK services PMI (Purchasing Managers’ Index) for December on Monday, which assesses the biggest part of Britain’s economy.
In addition, UK unemployment statistics for October are released on Tuesday, inflation data for November is due out on Wednesday, while the Bank of England makes its latest interest rates decision on Thursday. All these releases have the potential to affect the pound, alongside PM Johnson’s new government.
If you would like to learn more about what may affect the GBP/EUR or have an upcoming currency transfer, please contact me, Tom Holian, using the form below.