Election speculation and better than expected UK data sent the pound soaring versus the euro on Tuesday. The pound euro exchange rate rallied to a high of €1.1749, before easing slightly into the close. The pound euro exchange rate closed 0.4% higher at €1.1728.
With just 9 days to go until the UK general election, the Conservatives are holding a comfortable lead, according to the latest polls. The Labour party have been closing the gap on the Conservatives. The latest YouGov poll show that Labour hold its highest voting share since February.
Despite Labour’s gains, the Conservatives still hold a comfortable majority, with a 10-point lead over Labour. This lead is sufficient to ensure that the Conservative have an overall majority in Parliament, facilitating the approval of Boris Johnson Brexit deal and the UK leaving the EU by 31st January with a deal in place, which is pound positive.
Adding support to the pound was better than forecast construction data. Data showed that the decline in the construction sector eased in November, although the construction pmi remained firmly in contraction territory, edging up to 45.3 in November. This is still a long way from the 50 level which separates expansion from growth as election uncertainty and Brexit pessimism weighed on the sector.
Today investors will look towards the service sector pmi. The service sector is the dominant sector in UK economy, making up around 80% of economic activity. Analysts are expecting the service sector to remain in contraction at 48.6. A weak reading could boost fears off an economic contraction in the fourth quarter just ahead of Brexit. This could drag on demand for the pound.
Will EZ & German Service Sector PMI’s Drag On Euro?
The euro traded broadly flat versus its peers in the previous session, despite better than forecast producer price data (PPI). PPI unexpectedly increased 0.1% month on month in November, this an improvement from the -0.1% decline in October. Stronger PPI is a leading indicator for consumer price inflation.
Today investors will look ahead to the release of the release of the service sector pmi for both Germany and the eurozone. Analysts are expecting activity in the service sector to remain steady in November, avoiding a contraction. Any sign that the recent slowdown in the manufacturing sector is spilling over into the service sector could weigh on the euro.