This week has seen the Pound Euro exchange rate fall again, as market optimism towards the upcoming French Presidential election appears to outweigh concerns of a possible ‘Frexit’.
GBP EUR began the week trending in the region of 1.18 but has lost over half a cent.
The Pound’s losses were minimised by UK market optimism after a trio of better-than-expected UK April PMIs were published by Markit.
These figures indicated that Britain’s economy wasn’t facing a Brexit slowdown just yet. This, coupled with anticipation for the upcoming UK general election, has improved the short to long-term Pound outlook.
However, the Euro has been comparatively more influential and the Euro outlook has the potential to be strong enough to push GBP EUR lower in the short to long-term depending on the outcome of the French Presidential election.
Round two of the election will take place on Sunday the 7th of May, and both potential outcomes represent an extreme of sorts for the Eurozone’s economic outlook.
Pollsters and analysts predict that pro-EU centrist candidate, Emmanuel Macron, will win the election. Opinion polls put Macron at around 60% of the vote, a healthy lead.
Macron has claimed he wishes to strengthen France’s position in the European Union and the Eurozone. In the scenario Macron wins, the election perceived to be the single biggest threat to Eurozone stability will have passed with a stable outcome and this would be hugely Euro-positive.
However, it is still possible for Macron’s opponent, anti-EU far-right Marine Le Pen to win the election. If turnout to the election is poor, Macron is likely to suffer – which some analysts argue gives Le Pen a chance.
‘Frexit’ has been a key part of Le Pen’s election campaign. If Le Pen were to win and move towards a ‘Frexit’ process, the Eurozone may lose one of its biggest economies and the shared currency would be highly undermined.
Analysts have suggested this is one of the biggest potential threats to the currency’s future. In the event of a Le Pen win, the Euro will see massive falls next week.
So evidently, no matter the outcome of the French election, the short to long-term implications for both Europe and the Euro itself will be massive. One outcome sees the Eurozone being one of 2017’s best growing major economies and the other sees the bloc potentially fall apart.
Unsurprisingly, this will be the main cause of Pound Euro exchange rate movement in the coming week. It will also set the mid to long-term tone of Euro trade.
Sterling movement is unlikely to be influential next week, but Thursday’s Bank of England (BoE) policy meeting could alter the longer term Pound outlook.
The BoE is not expected to make any changes to UK monetary policy, but any indication from policymakers that the bank is hinting at moving away from its easing bias could definitely strengthen Sterling.
However, with analysts continuing to warn that rising inflation and slowing wage growth could dent economic activity this year, the BoE may be more likely to continue playing it safe for some time now.
At the time of writing this article, the Pound Euro exchange rate trended in the region of 1.18. The Euro to Pound exchange rate traded at around 0.84.
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