The Sterling Euro exchange rate just reached the best level for the British Pound since May 2017, as traders buy the GBP ahead of the December 12 UK general election, and on UK Markit Services PMI rising more than expected.
EUR/GBP Technical Outlook
The EURGBP exchange rate just declined below the March 2019 low of 0.8473, and the next major support level is the December 2016 low of 0.8306. In GBPEUR terms, that is the 1.2039 level. The technical trend for the EURGBP pair will remain downwards as long as the price trades below last week’s high of 0.8592, and the British Pound stands to gain.
However, caution is warranted, as ahead of the 2016 Brexit referendum the British pound also made gains in the week’s ahead of the vote, just to turn around and rise from 0.76 to 0.9273, a rise of 16.7% in a matter of a few months, as it was clear the UK would leave the EU.
If the EURGPB pair trades above last week’s high of 0.8592 the price might trade to the mid-point of the decline from the 2019-high. The mid-point level is currently at 0.8891.
Election Expectations Drive Sterling-Euro Exchange Rate
Until October, people at the betting at the firm Smarkets, were predicting that there would be a hung parliament, unable to move forward on Brexit. However, since mid-October, the odds have shifted in favor of the conservative getting their own majority, at the latest reading showed that they were given a 68% probability of securing control over parliament.
The money voted at Smarket markets is a mere £239,988 so the results need to be taken with a pinch of salt.
The ability of the Tories to end the Brexit if they get their own majority and go ahead with trade deal negotiations is liked by the markets. Brexit concerns is also influencing today’s PMI figures.
UK Markit Services PMI Beat Expectations
Another factor lifting the British Pound in today’s trading is the better than expected UK Markit Services PMI. The gauge rose to 49.3, from 48.6, and better than the 48.6 projected by economists. However, a reading below 50 suggests that the sector is contracting, which it still is doing, but far less than the markets projected. The main concern for services provides is Brexit.
Markit, the producer of the report, says that the report shows the UK 4Q GDP growth probably matched a pace of 0.1%. They also reported that the demand for new work dropped to its lowest level since 2016 and that export orders dropped to levels not seen since 2014.