ON PO­LIT­I­CAL TEN­TER­HOOKS

As po­lit­i­cal events con­tinue to af­fect ex­change rates, Charles Mur­ray con­sid­ers what the com­ing months might have in store for GBP/EUR

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Ini­tially when Theresa May an­nounced a snap elec­tion, the pound ral­lied as it seemed the PM would gain a larger ma­jor­ity. How­ever, May’s pop­u­lar­ity slipped lower and as the exit polls emerged, GBP/EUR sunk from 1.1552 to 1.1376, be­fore tum­bling lower to 1.1282.

How­ever, GBP/EUR climbed in mid-June as the Bank of Eng­land (BoE) sur­prised mar­kets with a 5-3 vote to keep in­ter­est rates on hold. Mar­kets had only ex­pected one mem­ber of the Mone­tary Pol­icy Com­mit­tee (MPC) to vote for higher rates, but it seems in­fla­tion has put pol­i­cy­mak­ers on edge.

UK in­fla­tion cur­rently re­sides at its high­est level since June 2013 at 2.9% in May, up from April’s 2.7%. UK wage growth isn’t keep­ing pace with in­fla­tion and BoE Gov­er­nor Mark Car­ney sug­gested this year will be a squeeze on house­holds.

Look­ing ahead, pol­i­tics are likely to play a large part in GBP move­ment. Both the pound and euro could feel the im­pact of cen­tral bank state­ments. Ad­di­tion­ally, mar­kets will keep an eye on the Greek debt cri­sis, Italy’s bank­ing woes, and the prospect of an Ital­ian elec­tion.

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