GBP/EUR: Brexit Fears & ECB Optimsm May Lower Pound vs Euro?
  • Pound (GBP) drifts higher
  • UK labour market data is due tomorrow
  • Euro (EUR) slumps after EU parliamentary election
  • Eurozone investor sentiment improves

The Pound Euro (GBP/EUR) exchange rate is rising for a third straight day. The pair rose 0.24% in the previous week, settling on Tuesday at €1.1782 and trading in a range between €1.1708 and €1.1782. At 13:00 UTC, GBP/EUR trades 0.45% at €1.1826.

The euro is falling across the board amid growing political uncertainty following the European Union elections.

The euro-sceptic far-right parties performed well in the elections for the European Parliament, although that was no surprise. The euro is falling on rising political uncertainty after French President Emmanuel Macron’s poor performance resulted in him announcing a snap election over the weekend. His party received just 15% of the votes, while far-right Marine Le Pen’s party, the National Rally, secured over 30%.

Political uncertainty is a double blow for the euro after the ECB cut interest rates last week for the first time in almost five years. The central bank reduced rates by 25 basis points to 3.75% but refused to commit to a future path for interest rates.

On the data front, eurozone economic sentiment showed signs of improving, rising 0.3% in June to its highest level since before Russia invaded Ukraine.

The pound is relatively unmoved versus the US dollar and edging higher against the euro despite a a lack of fresh fundamental catalysts.

This week, the political parties will release their manifestos for the UK election, which could provide further insight into parties’ priorities for the coming time.

Labour is still significantly ahead in the polls. However, given that the two sides are expected to have broadly similar policies, the pound is likely to be more influenced by interest rate cut expectations and Bank of England commentary.

Tomorrow, UK labour market data will be released, which could provide further clues about inflationary pressures in the UK. Signs of wage growth remaining strong could result in the market pushing back on Bank of England rate cut expectations.