The Euro has been gaining in value as of late and pushed up in value once more yesterday against the Pound. Selling Euros and buying Pound Sterling is now almost 3% higher than it was compared to only 3 weeks ago. Giving Euro sellers an additional £5,000 on a €200,000 sale. The reason for this gain in value has been as a result of less risk being seen in Europe’s political sphere as the French and Dutch elections get closer. In essence the risk of the far-right party in France winning has been falling.
Remembering that the Nation Front party have promised a vote to potentially leave the EU. With a fall in their likelihood of winning, the risk reduces and its currency has gained in value.
Yesterday we had the latest updates from the European Central Bank (ECB). They made no changes to the central polices with no change to interest rates or indeed their Quantitative Easing (QE) program. The market was really looking for more information on how the bank is planning on managing the inflation concerns across the single currency, however this was unanswered. Euro area inflation hit a 4 year high of 2.0% driven by rising energy prices.
The official Inflation forecasts from the ECB were increased to 1.7% for 2017 and 1.6% for 2018. Mario Draghi, the head of the bank, however remained generally positive for the future of the Euro. He re-confirmed the previous announcement that the level of QE would be reduced from a €80 billion down to €60 billion. This reduction was seen as a positive event suggesting that the economy needs less support and as a result pushed the value of the EURO up against the GBP and the USD.
Political uncertainty however remains on the horizon in the relatively immediate future. The Dutch general elections are due on the 15th of March, next Thursday and currently the ultra-right PVV are coming high in the polls. Many expect some form of hung parliament to have to be formed following the elections however with their involvement and power growing the prospect of a ‘Nexit’ is getting greater. Despite strong support for the Eurosceptic prime ministerial candidate Geert Wilders, 78% of Dutch voters support membership of the EU.
As a result, I personally don’t expect a ‘Nexit’ however the concern could have a negative impact on the Euro through next week and will in turn probably result in some better levels for EURO buyers in the middle of next week. This result in the Netherlands will also be seen as an insight to potential results in the French elections in April which will probably have a larger impact on the Euro.
Today European eyes will be focused on Germany as they have released a number of updates which will probably set the trend of the Euro this morning. Germany always remains a key indicator for the whole of the EU and is widely seen as the ‘engine room’ for Europe as a result of having the largest economy. What is interesting to note however is that in an effort to diversify their dependencies they have continually been looking to widen their export partners. It was reported this week that China overtook the US and France to become Germany’s leading trading partner for the first time in 2016.
If you have a Euro requirement remember that political events throughout 2017 may stir significant volatility, and those with a Euro buying or selling requirement may benefit from regular contact with an expert who can guide you through the process. Our friendly team can be reached on 01494 725 353 or alternatively, you can email me here.
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