Pound-to-Euro Forecast: GBP Hits Three-Week Low On Starmer Pressure

The Pound to Euro (GBP/EUR) exchange rate slid to a three-week low on Tuesday as mounting political uncertainty in the UK weighed heavily on Sterling sentiment.

At the time of writing, GBP/EUR was trading around €1.1517, down 0.3% on the day.

DAILY RECAP:

The Pound (GBP) came under heavy pressure on Tuesday as political uncertainty surrounding Prime Minister Keir Starmer intensified.

Despite Starmer’s efforts to calm markets with a defiant speech on Monday, reports suggested growing unrest within the Labour Party following last week’s local election losses.

Current councillor changes show Labour down 202 seats, the Conservatives down 61, while Reform UK added 270 councillors. The Liberal Democrats gained 29 seats and the Greens added 23.

Reports that dozens of Labour MPs and several senior cabinet ministers were questioning Starmer’s leadership unsettled investors and pushed UK gilt yields higher once again.

Markets were particularly concerned that any leadership change could result in looser fiscal policy and higher government borrowing, weighing heavily on Sterling.

Meanwhile, the Euro (EUR) initially struggled for direction due to its negative correlation with the stronger US Dollar.

However, the single currency later found support after Germany’s latest ZEW economic sentiment index unexpectedly improved in May, easing some concerns over the outlook for the Eurozone’s largest economy.

The stronger German data helped the Euro advance against the weakening Pound despite some profit-taking at higher levels.

GBP/EUR Forecast: Eurozone Data and UK Politics in Focus

Looking ahead, Germany’s latest wholesale price figures and Eurozone industrial production data could influence the Euro in midweek trade.

Signs of softer inflation pressures or weaker industrial output may weigh on EUR sentiment.

For Sterling, political developments in Westminster are expected to remain the dominant driver.

Any further escalation in leadership speculation surrounding Prime Minister Keir Starmer could keep pressure on the Pound, particularly if UK bond yields continue to rise.