Sterling gained in value versus the euro on the interbank market this week, at one point hitting a six-month high. This is largely because the financial markets are increasingly hopeful that there’ll be a stable, majority UK government, after December 12th’s general election.
What’s more, the pound’s strength versus the common currency this week is in spite of the fact that the Eurozone’s economic data has largely improved.
For instance, Germany’s Q3 GDP statistics have exceeded forecasts, while Eurozone industrial production rose for the second consecutive month, in spite of the ongoing US/China trade war. If this upbeat trend goes on, it may affect the euro in future.
To start with, the pound to euro interbank exchange rate has strengthened this week, because the financial markets think that, what with the Tories polling higher, it’s likelier that there’ll be a stable UK government after December 12th’s vote.
For the world’s money managers, as well as for British businesses, this would provide greater clarity about the UK’s future economic and political direction, enabling them to hire more staff and make spending decisions. In turn, this could accelerate the UK’s economic growth.
However, it’s worth noting that the polls are frequently wrong, and there are lots of swing seats at next months’ election, in which a different political party may win a constituency, so this uncertainty may affect sterling.
Germany’s economy surprisingly expanded by 0.1% in Q3, between July and September, said official statistics this week. This was ahead of financial market forecasts for a minus 0.1% decline and follows Q2’s contraction of 0.2%.
As a result and in spite of widespread predictions to the contrary, Germany has avoided a technical recession, defined as two consecutive quarters of falling economic output. However, it’s important to note that, although Germany “dodged the bullet” this week, the Eurozone’s largest economy remains weak.
For example, Daniela Schwarzer, director of the German Council on Foreign Relations, says that: “The whole question is what will the sources of future growth be for Germany.”
Looking to next week, key economic data includes Germany’s manufacturing PMI (Purchasing Managers’ Index) for November, as well as the Eurozone’s composite PMI for this month. Both these releases have the potential to impact the interbank exchange rate.
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