GBP/EUR exchange rate week review: pound firms slightly versus euro following landslide Labour election win
The pound euro (GBP/EUR) exchange rate ticked up on Friday, heading higher as Keir Starmer's Labour party was elected to government in a historic landslide victory.
(01/07/2024 to 05/07/2024)
Monday
The pound euro (GBP/EUR) exchange rate was dealt a chastening blow by the results of France’s first round of elections over the weekend.
Political anxiety was tempered after the far-right National Rally (RN) party won less support than many polls had projected. As fears of a majority RN government subsided, the pound fell to a fresh three-week low around 1.177 versus the euro, which jumped in value.
The pound’s downward momentum was slowed by the latest UK manufacturing PMI, which pointed to an upward trend in the sector, despite softening from 51.2 to 50.9, rather than increasing to 51.4 as forecast.
Tuesday
Having arrested its losses, the pound rose above the 1.18 benchmark after the latest Eurozone inflation print dented the euro.
The harmonised index of consumer prices in the eurozone rose by 2.5% year-on-year in June, in line with expectations. This marked a slight decline from the 2.6% recorded in the previous month, bolstering hopes for another interest rate cut by the European Central Bank (ECB) in September.
Wednesday
The pound euro rate consolidated its gains amid further signs of disinflation in the bloc.
Producer prices in the Eurozone dipped by 0.2% in May compared to the month before, overshooting market forecasts of a 0.1% decrease. Further signs of easing price pressure left the door open for the ECB to lower interest rates in the third quarter, undermining the euro.
This followed data showing growth across Britain's services companies ebbed to a seven-month low in June, which offset by a falling German services PMI and stalling services in the Eurozone.
Investors braced for the UK general election and the potential for a landslide Labour victory, which had been lending the pound modest support. While a change of government spelt uncertainty, the chance of a stable elective outcome dictated market sentiment.
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Thursday
The pound euro rate traded without a clear direction close to a weekly high above 1.18 as Britain headed to the ballot box.
Expectations for a landslide Labour victory kept the pound afloat amid election day market nerves.
The euro struggled to garner investor support as German factory data unexpectedly declined in May and ECB’s Chief Economist Philip Lane delivered lukewarm comments. Speaking at a lecture in Italy, Lane noted that easing wage growth is persisting in the Eurozone, but these pressures are likely to ebb throughout next year.
Friday
The pound firmed slightly against the euro as a landslide election victory for Labour came into view. A large majority for Keir Starmer’s party had been widely expected and priced into financial markets, leading to a muted reaction for the pound when it was confirmed.
Meanwhile, the euro managed to sidestep some underwhelming economic data, notably slumping German industrial production in May and a shallower recovery in Eurozone retail sales than expected last month.
The pound euro rate ended the week at 1.181.
Looking ahead
The far-right National Rally party is expected to fall short of an absolute majority following the second round of French elections on Sunday, which would result in a hung parliament – an outcome that might lift the euro in the short-term, but the single currency’s appeal could quickly wane.