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Pound Euro (GBP/EUR) Exchange Rate Falls as Markets Fear Hung Parliament

Published: 12 Dec at 4 PM Tags: Pound Sterling, Euro Exchange Rate, Currency Exchange, Forex, Euro Crisis, Exchange Rates, Economy, Inflation, Pound Euro Exchaneg Rate,

The Pound Sterling Euro (GBP/EUR) exchange rate was volatile, as British voters took to the polls on Thursday, leaving the pairing trading around €1.1819.

Over the course of the week, the Pound has been buoyed by Brexit optimism reaching a two-and-a-half-year high against the single currency.

Overnight, GBP volatility increased to the highest level seen since the 2016 Brexit referendum, and it is likely the Pound will move sharply once the election results are in.

Jitters were sent through the market after a YouGov poll on Tuesday evening revealed forecasts for a Tory majority narrowed from the previous prediction of 68 seats to 28 seats.

Added to this, the agency also stated the risk of a hung parliament could not be removed.

Looking ahead, once the election results are in the Pound Euro (GBP/EUR) exchange rate is likely to move.

If the Conservatives are able to secure a majority, Sterling sentiment will receive a boost. Although, traders will be looking at the size of the majority.

Commenting on this, Neuberger Berman’s head of global currency, Ugo Lancioni noted:

‘The immediate price action in Sterling will obviously be driven by the election outcome, but the magnitude of the majority will also be important.’

Meanwhile, the single currency edged higher on Thursday, as the European Central Bank (ECB) left its ultra-easy monetary policy unchanged.

During ECB chief, Christine Lagarde’s first meeting as head of the bank, policymakers left the door open for further stimulus as the Eurozone economy struggles.

Lagarde noted that risks were skewed to the downside thanks to a range of factors including geopolitics, vulnerabilities in emerging markets, and protectionism.

However, she did note that these risks were less severe than previously thought, and during the afternoon’s press conference the ECB chief noted:

‘If you compare with a few months back it’s heading in a better direction.’

Commenting on one of the largest headwinds to the bloc’s economy, Brexit, Christine Lagarde noted:

‘That [Brexit] is another piece of uncertainty that is loosening, and will give a better view of the environment we are participating in.’

Meanwhile, she also noted during her press conference that she was ‘neither a hawk nor dove’, instead her ‘ambition is to be an owl’.

Commenting on Lagarde’s first monetary policy meeting and press conference, Aberdeen Standard Investments’ senior economist, Paul Diggle said:

‘She gave a slightly more upbeat assessment of the growth and inflation outlook; sounded slightly more cautious about the negative consequences of negative rates; stepped up the lobbying of governments to loosen fiscal policy; and gave a sneak-peak of the topics the ECB strategic review will cover.’
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