GBP/EUR exchange rate midweek update: pound firms ahead of UK general election
Having been dented by the results from the first stage of France's general election, the pound euro (GBP/EUR) exchange rate firmed as Britain prepares to head to the polls.
(01/07/2024 to 03/07/2024)
Monday
The pound euro (GBP/EUR) exchange rate traded on the back foot following France’s first round of elections over the weekend.
With the far-right National Rally (RN) party garnering less support than some polls predicted, fears of a majority RN government abated. Easing political anxiety caused the pair to fall to a fresh three-week low around 1.177 as the euro surged in value.
The pound’s fall was cushioned by the latest UK manufacturing PMI. Despite dropping from 51.2 to 50.9, rather than rising to 51.4 as forecast, the print signalled an upward trend in the manufacturing sector.
According to Rob Dobson, Director at S&P Global Market Intelligence: “The UK manufacturing sector is enjoying its strongest spell of growth for over two years, with June seeing output and new order growth sustained at robust rates similar to May’s recent highs. The performance of the domestic market remains a real positive, providing a ripe source of new contract wins.”
Tuesday
The pound euro rate regained its footing, climbing a fraction above 1.18 after the single currency was pressured by Eurozone inflation figures.
Inflation in the bloc for the year to June cooled to 2.5% as expected, marking a slowdown from 2.6% in May. Slowing price rises across the euro area provides the ECB with some relief having cut interest rates in expectation of inflation hitting the central bank’s 2% target by next year. This left the door open for another rate cut in September, which weighed on the euro.
Wednesday
The pound euro rate clung onto its gains from the previous day after confirmation of slowing services growth in the UK was negated by a similar situation in the Eurozone.
Growth across Britain's services companies eased by less than forecast in June, but it still waned to a seven-month low. The S&P Global UK Services PMI dropped to 52.1 from 52.9 in May, its lowest reading since November but revised up from a preliminary estimate of 51.2.
Germany’s finalised services PMI fell slightly more than forecast in June. Meanwhile, the Eurozone’s services sector expanded for a fifth straight month but lost momentum slightly in June.
Looking ahead
Opinion polls suggest that the general election on Thursday will lead to a change of government after 14 years of Conservative rule. However, some analysts expect its impact on currency markets to be muted. This is because the prospect of a landslide Labour victory – the most probable outcome, according to the BBC’s online poll tracker – has already been baked into the pound.