There are concerns that Brexit could have a domino effect on the rest of the Eurozone. Could France be next to hold their own EU Referendum?

Political uncertainty ahead for the Eurozone

We have seen how much political uncertainty can affect a currency with the impact of the Brexit on the Pound, so could we now see a similar impact on the Euro with Marine Le Pen’s promise to hold a ‘Frexit’ vote if she is voted in as PM in France’s general election in April/May of next year?

Le Pen is the leader of the National front, the largest right party in Europe, which has gained much support following the spate of terrorist attacks across France since the end of 2015.

There could also be further political uncertainty across Europe with Germany, the powerhouse of the Eurozone, due to hold their next general election in 2017 too. As we saw with the UK’s general election in 2015, it can have a big impact on the value of the currency in question, with the Pound falling by almost 4% in the space of a few weeks.

Will the ECB cut interest rates this week?

As mentioned in my Sterling report this morning, the Pound soared to a 2 month high against the Euro last week, mainly due to an improvement in UK economic output, but I also believe that frailties within the Eurozone contributed to some Euro weakness that helped the Pound to this recovery. Despite this year’s interest rate cuts, inflation figures for August showed a drop which suggests that the stimulus brought in earlier this year is not having the desired effect. The ECB’s next interest rate decision is on Thursday this week, and as a result of last week’s unflattering inflation figures, I believe that the ECB will be forced to act this week or at least give some hints as to future policies.

Interest rates are already at 0% in an attempt to boost borrowing and therefore spending, so it is unlikely that they will turn these negative, but there may be a further cut in the overnight deposit rate, which charges banks to hold large deposits and therefore encourages them to lend to consumers instead. If that is the case, then I believe we could see some Euro weakness and an excellent opportunity for Euro buyers to pounce on.

Pound Sterling could make further advances against the Euro if the ECB decide to implement further Stimulus. Get in touch with our brokers today if you have a Euro requirement in the upcoming days and weeks.

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