The Pound Sterling to Euro (GBP/EUR) exchange rate weakened on Monday and further losses are forecast over the coming weeks as investors increase their bets that the UK currency will decline as the May 7 general election draws nearer.
The Pound Sterling to Euro (GBP/EUR) exchange rate fell to a session low of 1.3750
With recent opinion polls putting the Labour and Conservative parties on near equal support, the outcome of the vote is unclear. Neither party is expected to win enough seats to form a majority government. Speculation as to what form a coalition government would take is increasing which in turn is putting pressure upon the Pound Sterling.
‘All paths lead to a degree of Sterling weakness. Traditionally the Pound does better if the Conservatives are expected to win and does worse if Labour is set to win. That doesn’t hold so closely this time around,’ said a strategist from HSBC.
Some economists are forecasting that the Pound could weaken by a number of percentage points as voting day draws closer.
As well as the political uncertainty putting pressure on the Pound, concerns are also mounting that the uncertainty created by the general election will provide the Bank of England with more excuses to leave interest rates unchanged at the record low level of 0.5%. If the bank suggests that rates will not rise, the Pound will tumble.
‘The most important thing for the market is whether the Bank of England is going to start raising rates. The month of May will also be very important for the publication of the BoE’s inflation report, which is a more important event than the election for the exchange rate,’ said Asara Jamaleh an economist from Intesa Sanpalo.
Greece Concerns Forecast To Restrain Euro
The Euro meanwhile remains under pressure from concerns over Greece’s future in the Eurozone and the implications of a possible ‘Grexit’. The leaders of Greece and Germany are set to hold a talk later in the session and pressure is building on Athens to deliver new economic reform measures, which will be acceptable to its creditors.
If no deal is reached to release the next tranche of bailout funds Greece could go bust, and be forced to leave the single currency bloc.
The GBP/EUR exchange rate could weaken further later in the session if the latest UK CBI data disappoints and if Eurozone consumer confidence data comes in positively.
