Sterling vs Euro near 39-Month High as UK Economy May Accelerate in 2020

GBPEUR Looking to Test Monthly Highs

The pound to euro interbank exchange rate stands at 1.2045 today. This is just 0.25% below sterling’s recent 39-month high against the euro, its strongest since September 3rd 2016, reached last Friday 13th, at 1.2076.

Sterling remains supported, because following the Conservatives’ unexpectedly large win at the UK’s general election last Friday, it’s thought that the UK economy may accelerate in 2020.

Prime Minister (PM) Boris Johnson’s Tories won 365 seats at last week’s vote, 66 more than in 2017, and far beyond YouGov’s MRP’s prediction of 28. As a result, it’s believed that PM Johnson will at long last finalise the UK’s Brexit agreement as soon as this week, before Christmas.

This will help give clarity to British businesses and investors, who’ve been under a cloud of uncertainty ever since the UK’s referendum for Brexit, in June 2016. So this possibility of clarity has supported the pound.

UK GDP Growth Set to Accelerate in 2020

If British businesses and investors feel that there’s clarity about the UK’s outlook, this could lift the UK’s GDP (Gross Domestic Product) growth in 2020.

For instance, following the Tories’ election win, it’s forecast that the UK economy might grow by 1.8% in 2020 and 2.1% in 2021, notably above this year’s 1.3%. This is because, now that it’s virtually certain that Brexit will be finalised soon, British firms may be inclined to hire staff and buy equipment.

In addition, PM Johnson has pledged to significantly increase UK government spending in the next five years, and bring an end to austerity. This too could boost the UK’s economy next year, and is contributed to bolster sterling.

GBP Might Be Affected by Latest UK Economic Statistics This Week

In the meantime, we’ll get the latest picture of the UK’s economic health, with this week’s economic releases.

These include IHS Markit’s “flash” UK services and manufacturing PMIs (Purchasing Managers Indices) for December today, UK unemployment statistics for October tomorrow, UK inflation figures for November on Wednesday, the Bank of England’s final interest rate decision of 2019 on Thursday.

These may show us how the UK economy was performing prior to last week’s vote, and could influence the value of sterling, if they’re above or below the financial markets’ forecasts.

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.