Key events
Pound highest since summer 2022 against the euro
The euro’s weakness today has sent it to its lowest level against sterling since August 2022.
The pound traded as high as €1.1829 this morning, up half a euro cent, a level last seen shortly before Liz Truss’s mini-budget sent sterling reeling:
The euro has weakened in recent months as it became clear that interest rates would be cut faster in the eurozone than in other advanced economies.
Last week the ECB lowered interest rates for the first time in five years, while the Bank of England is not expected to cut rates until November.
Matthew Ryan, head of market strategy at global financial services firm Ebury, agrees that a Labour majority would be the most “market friendly” outcome for the UK election.
Ryan explained:
“Indeed, the pound continues to comfortably outperform the euro in the past month, as markets view a Labour majority as perhaps the most market-friendly outcome of the pending general election – a reflection of both the lingering damage done by Liz Truss’ ill-fated budget, and a shift towards the political centre under Keir Starmer’s leadership.
The latest polling continues to give Labour a solid lead:
Bloomberg: Labour victory would be best outcome for the pound
With less than a month to the UK general election, City investors are weighing up the implications of a new government.
And a poll conducted by Bloomberg has found that a Labour victory in next month’s UK election would be the best outcome for the pound, while a hung Parliament was seen as the worst result.
That’s a verdict that will cheer Labour, as it tries to persuade voters that it is a safe choice on 4 July.
As Derek Halpenny, head of research for Europe, Africa and the Middle East at MUFG, put it:
“A large stable majority for the Labour Party, which is less divided than the Tories, will signal better stability ahead.”
Shadow chancellor Rachel Reeves has put a lot of effort into reassuring the City they can trust her party, arguing that Labour is the “natural party of British business”, and ruling out raising income tax, national insurance and VAT.
Less encouragingly, around 60% of those polled – which included portfolio managers, economists and retail investors – reckon it will take the pound more than. five years to return to the $1.50 level it traded at before the EU referendum of 2016.
Introduction: Eure hit by political anxiety
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The euro is under pressure today as traders digest last night’s EU election results, and a shock parliamentary election being called in France.
Political uncertainty has knocked the single currency to a one-month low; it’s down half a cent this morning to $1.0753. Against the pound, the euro has dropped to a near two-year low.
European stock markets are set to open in the red, too.
🇪🇺 Deepening political angst in Europe is likely to add fresh pressure on the #euro after parliamentary votes saw leaders in France and Germany suffer losses.
The euro fell to its lowest in a month against the dollar after Macron and Scholz were trounced by far right parties in… pic.twitter.com/Roi0CYNMyG
— Jack Hoogland (@jack_hoogland) June 10, 2024
The euro lost ground after France’s president, Emmanuel Macron, announced he will dissolve parliament and call snap legislative elections after his allies suffered a crushing defeat to Marine Le Pen’s far-right National Rally (RN) in Sunday’s European parliament elections.
It was also a bad election for German chancellor Olaf Scholz, whose Social Democrats scored their worst result ever while the far-right Alternative for Germany (AfD) secured second place.
Macron took his shock move after his centrist list, headed by MEP Valérie Hayer, scored just 15% in the European poll, less than half the 31.5% tally booked by RN, whose lead candidate was the party’s president, Jordan Bardella.
Analysts say it’s unprededented in modern French politics for a president to call an early parliamentary election from a position of weakness.
Macron, who still has three years of his presidential term to serve, may want to put RN under more scrutiny, and present French voters with a clear choice – either a pro-European, pro-Ukraine, centrist position, or the far right alternative.
Mujtaba Rahman, managing director for Europe at Eurasia Group, explains:
Only just over half of French voters turned out on Sunday, compared to 70% in national elections. No party which has “won” a European election in France has gone on to win the following national. election.
All attempts by Macron’s camp to make the campaign a referendum on the Ukraine war or the. survival of the European Union or on the competence and extremist background of Le Pen and her chief allies, fell on deaf ears. The campaign was from the beginning a referendum on Macron’s seven years in power—and turned especially on “far right” themes such as immigration and violence.
Although right-wing parties made significant gains across Europe, Commission president Ursula von der Leyen was able to declare that “the centre is holding”, with candidates from her centre-right European People’s party securing the most seats.
But mainstream parties did lose seats overall, which will complicate von der Leyen’s bid for a a second five-year term at the helm of the EU commission.
