Sterling/Euro rates have fallen to the lowest in nearly 2 months, and the Pound was unable to recover the losses we saw last week following weaker than expected Services data on Friday.
After many weeks with this pair stuck at around the €1.17 level, we’re starting to see movement to the downside due to uncertainty over when Article 50 will be triggered. This was due to a government defeat in the Lords which effectively means Brexit negotiations won’t begin until March 13th at the earliest. The delay has simply increased the uncertainty in a market that was expecting some direction with regards to when negotiations would start.
French and Dutch Elections
The Pound continued to fall against the USD and other currencies throughout the day yesterday, but GBP/EUR was kept from falling below €1.1530 due to developments in the French elections. On Friday polls showed that Marine Le Pen would probably be knocked out of the second round of polls this week, strengthening the Euro. However Alain Juppe announced yesterday he would not be running. With Mr Fillon’s ratings slipping this means that the 2 main parties (the Socialist and the Republicans) will likely be knocked out in the first round, leaving Mr Macron and Marine Le Pen as the front runners. While a Le Pen win is still unlikely, profound change for Europe will follow if she does, and the markets are very wary of surprise vote outcomes in recent times. The Euro weakened preventing GBP/EUR from falling any further. The French election will be held on 23rd April.
In Holland the election is on March 15th and will widely be viewed as a barometer of the strength of populism across the EU. With the polls neck and neck, there is every chance that the coiffured demagogue Geert Wilders will win the most votes. If he does win though, he would probably struggle to form a coalition. Regardless what happens, as polls are released and markets try to second guess the outcome of the votes, there could well be some wild swings in the GBP/EUR rate between a possible range of €1.12 to €1.1950, and there will be opportunities for those looking to either buy or sell the Euro. If you have a GBPEUR or EURGBP currency requirement, then you should speak to us today to find out how to limit your exposure and take advantage of any spikes in your favour that may well prove to be very short lived.
What could move exchange rates in the coming days?
This morning EU GDP figures are released today at 10am, and we expect monthly growth at 0.4%. If the figure differs from this expected figure then GBP/EUR may well be affected. Those with a currency requirement may also wish to explore their options before tomorrow’s UK Budget statement and US jobs data. Historically the budget doesn’t usually have much of an impact on the currency markets, but in the current climate where politics is driving the value of various currencies, this budget could buck the trend.
Later in the week we have an EU interest rate decision; watch for any news on tapering of QE. Friday will also be very important as we have the latest UK Industrial and Manufacturing production figures which if lower than expected (as other recent UK data has been) would show Brexit starting to take its toll on the economy and send the Pound lower. US Non-Farm payrolls on Friday will also be very important as a strong number will mean a rate hike in the states is almost guaranteed, pushing GBP/USD lower and lower.
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