The Euro strengthened in the morning on Friday due to Angela Merkel’s success in negotiating terms with the Bavarian conservative party which helps to prop up part of her coalition Government.

However, late last night the German Chancellor had to calm tensions with conservative allies from within her coalition government. Interior minister Horst Seehofer and leader of the CSU (Bavarian Christian Social Union) threatened to turn away any migrants in Germany that had already been registered by another EU country. Today's Euro report looks into the way the political tensions such as this could bring put pressure on the single currency. The table below displays the range of exchange rates over the course of a month, showing the difference in Euros you could have achieved when selling £200,000.00.

Currency Pair% ChangeDifference on £200,000
GBP/EUR1.85%€4,180

As it stands, Merkel is now in a political fight for her leadership. The chancellor has rejected Seehofer’s plans to turn away migrants, as she believes that it could create a chain reaction to offset other EU nations to close its borders, eliminating border free travel. If Seehofer goes ahead with his plans, Merkel would have choice but to fire him and destroy her coalition.

As the driving force of the EU’s economy, any political tensions are likely to have an adverse effect on the currency. I would expect the Euro to weaken dramatically should these political tensions escalate further.

Inflation outlook: Oil prices push inflation higher, core prices remain subdued

Inflation outlook: Oil prices push inflation higher, core prices remain subdued

Higher energy prices have helped to push the eurozone’s annual rate of inflation above the European Central Banks Target of 2% a report on Friday found. Investors won’t be surging to the Euro just yet however, as core prices dropped to 1% from 1.1% and will do little to change the ECB’s outlook on monetary policy just yet. Earlier this month the ECB said it would continue to buy 30bn worth of Government bonds each month until September, reducing the amount to 15bn until December and then end the programme completely.

The ECB also added that it wouldn't be in a position to raise rates until 2019, which is likely to keep any real Euro strength subdued in my opinion.

Data this week

June’s Markit purchaser’s managers index is released today and analysts are expecting this to stay in line with the flash estimate produced earlier this month, so any deviation on this figure is likely to affect the Euro. Tomorrow will see the unemployment rate for the bloc released, which is also expected to hold steady and on Wednesday, similarly to that of UK, Services PMI data will be released.

For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email me here.

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