Downside pressure continued to build on the Pound after the latest YouGov poll showed a further narrowing of the Conservatives’ election lead.
With Labour apparently now trailing by just five points expectations for a Tory landslide victory have eased, denting GBP exchange rates.
However, as analysts at Royal Bank of Canada commented:
‘We note that the YouGov polls have tended to show a smaller Conservative lead than most of the other polls in recent weeks and also that YouGov says the swing in the latest poll is probably due to Conservative manifesto commitments, some of which have changed subsequently.’
Even so, if subsequent opinion polls indicate that Labour is continuing to build momentum this could encourage the Pound Euro exchange rate to soften further.
Following the unexpected downward revision to the first quarter UK gross domestic product confidence in the resilience of the economy remains limited, adding to the bearish mood of Sterling.
Demand for the Pound is unlikely to pick up next week as forecasts point towards a fresh downtick in the GfK consumer confidence index for May.
Weakening consumer sentiment could have a negative impact on the wider economy, given how strong consumer spending has helped to drive recent growth in spite of post-referendum jitters.
Volatility could also be in store for GBP exchange rates ahead of the latest raft of UK PMIs, which may indicate that economic momentum remains limited in the second quarter.
On the other hand, if the economy shows signs of picking up the appeal of the Pound could improve.
As the European Central Bank (ECB) continues to talk down the prospect of any imminent monetary tightening the market view of the Euro has remained generally bearish.
Despite the disappointment over Greece and the Eurogroup’s failure to approve the next tranche of bailout funds the single currency could return to a stronger footing in the near term.
May’s German consumer price index report may encourage investors to pile back into the Euro, providing that inflationary pressure strengthens further on the year.
Signs of rising inflation across the rest of the Eurozone could boost the appeal of the single currency further, increasing the pressure on the ECB to return to a more hawkish outlook on monetary policy.
If the CPI fails to pick up significantly, though, the outlook of the ECB is likely to maintain its view that the increase in inflation remains unconvincing.
May’s German and Eurozone unemployment figures will also be in focus, potentially encouraging further weakness for the GBP EUR exchange rate if the labour market continues to tighten.
Current GBP EUR Interbank Exchange Rates
At the time of writing, the Pound Euro exchange rate was slumped at 1.1465. Meanwhile, the Euro Pound exchange rate was making strong gains in the region of 0.8722.
