EURGBP Sinks as UK election Fears Dissipate

The EURGBP rate was 0.50% lower on Monday as traders unwind bearish bets on the UK election outlook. The SNP victory was largely anticipated but the Conservatives were able to score some good wins against the Labour party, which puts any fears over the trajectory of the UK at bay. Traders are going back to the Bank of England meeting last week, where a small tapering of bond buying was met with a big GDP growth upgrade to 7.2%.

The EUR to GBP rate is trading at 0.8650 and the failure at 0.8700 could be costly for the euro.

Hartlepool election win boosts Tories

The UK government may have benefited from the vaccination rollout and reopening of the economy as parts of England went to the polls. The Tories won an extra 290 seats to take their total to 2,198, which included a landmark victory in Hartlepool. The Conservative win was the first time ever that the party had taken the seat. Candidate Jill Mortimer struck a blow to Labour’s red wall with the stunning victory that doesn’t bode well for the Labour party’s chances.

The Labour Party lost a total of 247 seats to grab 1,268 and the result adds some political stability to the UK after a time of upheaval. The only sticking points now are the Northern Ireland and Scottish situation, while Brexit wrangling also weighs on sterling.

Nicola Sturgeon won a fourth term as the Scottish First Minister and that has raised the ghost of independence as she started to call for another vote.

Boris Johnson will deny such a vote and if the Scottish government were to go it alone then it would leave the EU in a bind. Supporting an unofficial Scottish vote would go against their actions in Catalonia and could raise tensions in Spain.

GDP and inflation will guide euro pound midweek

Monday has a Halifax house price index update in what may be a quiet session, while tomorrow sees the release of ZEW economic sentiment index readings for the Eurozone and Germany. The German reading is expected to show small improvement as sentiment grinds higher near the end of the persistent lockdowns.

German data will return on Wednesday with an inflation update for April. Last month saw a reading of 1.7% and this month is expected to show a 2% reading. Inflation numbers are creeping higher for the developed economies and this is despite the ongoing lockdowns.

A British GDP update will follow for March and this may not be a great surprise after the Bank of England upgraded its growth outlook on Thursday to 7.2%. Britain is expected to see its pre-virus activity levels before the end of 2021. The year-on-year growth figure is expected to be trimmed to -6% from -7.3% and any deviation could see a move in the pound but the country is on course for a strong year.

The EURGBP has some support at 0.8600, while the lows for 2021 were below the 0.8500 level.

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