The pound was buoyed by fresh polls showing the Conservative Party extended its lead over the Labour Party just days before the election. Investors see a Conservative win as increasing the odds of parliament approving a Brexit deal and putting an end to three-and-a-half years of political uncertainty. However, it has been argued that future GBP gains may be limited as the UK will have to negotiate a fresh trade deal with the bloc if it formally exits the union at the end of January.
Added to this, officials have also questioned Prime Minister Boris Johnson’s claims that the UK will make a clean break from the EU at the end of 2020, as many fear a customs arrangement in Northern Ireland could not be ready in time.
Commenting on this, MUFG currency analyst, Lee Hardman noted that this “points towards the likely need for an extension to the transition period beyond the end of the year, something Boris Johnson has pledged not to request”.
He also noted that “it leaves open the risk of a no-deal Brexit towards the end of next year”.
Meanwhile, the single currency edged up as this morning’s German trade balance report showed an unexpected increase in exports and provided some respite.
Month-on-month exports rose by 1.2 percent in October, the seventh increase in the last 10 months.
Commenting on this, ING’s Carsten Brzeski noted: “Today’s trade figures are the first positive data for the final quarter of the year. With disappointing consumption and industrial data but encouraging trade data, the economy will remain on a bumpy road between contraction, stagnation and meagre growth.”
The increase in exports also supported hopes that the country’s manufacturing sector can avoid contraction in the final quarter despite a slew of negative indicators in recent weeks.
Additionally, the Eurozone’s Sentix investor confidence index improved from -4.5 to 0.7 in December rather than falling to -5.3 as forecast.
UK election speculation will continue driving GBP/EUR movement as the week continues.