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Pound euro exchange rate: UK political uncertainty and ongoing German slump GBP/EUR flat

Pound euro exchange rate: UK political uncertainty and ongoing German slump GBP/EUR flat 1

While the risk of a hard Brexit has decreased and the Conservative Party leads in the polls, a prevailing sense of political uncertainty left GBP investors in a state of limbo. FX strategist at Nomura, Jordan Rochester said: “It’s too early to say who’s going to win and given that uncertainty, foreign investors will hold back from being overweight UK assets.”

Brexit Party leader, Nigel Farage reduced the odds of a Tory party victory and exerted some pressure on the pound when he refuted news that his party will step aside to avoid split votes. 

Mr Farage went on to denounce Prime Minister Boris Johnson’s withdrawal agreement, widening division between the country’s two pro-Brexit parties and heightening an already prevailing sense of political uncertainty.

While UK construction data was predicted to have little impact on Sterling exchange rates, the index remained firmly in contraction territory and likely contributed to pressure on the pound. 

The weakest level of British business optimism since 2012 and civil engineering data plummeting at its fastest pace in a decade also combined to sedate the British currency.

Tomorrow’s UK services PMI is likely to have a more noticeable impact on Sterling exchange rates, with a likely slump in GBP/EUR exchange rates if services figures print low. 

Meanwhile, the single currency remained under pressure today as Germany’s manufacturing PMI clung close to a decade low, with new orders slumping for the thirteenth month in a row and manufacturers reporting a steep reduction in buying levels.

Commenting on this morning’s data, Markit’s Principal Economist, Phil Smith said: “The German manufacturing sector remains in recession and continues to pose a threat to the domestic economy through a rising number of factory jobs losses. Employment across the goods-producing sector is now falling at the fastest rate for the best part of ten years, though it should be said that the decline is nothing like that seen during the depths of the global financial crisis, and is so far mainly restricted to contractors.”

Meanwhile, EUR investors are likely to react to incoming European Central Bank (ECB) President Christine Lagarde’s speech later this evening. 

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Markets expect the new ECB chief to remain in line with the policy easing script of her predecessor, Mario Draghi, which could see the single currency under pressure. 

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