The Euro rose last week as the Dutch election result settled fears over the spread of right wing populism. There were also comments by the ECB (European Central Bank) that they might be looking to raise interest rates sooner than later. With the Eurozone economy performing well this possibility longer term could see the Euro strengthen. A higher interest rate makes a currency much more attractive to hold so Euro buyers hoping for weakness down the line should be careful assuming rates will go up.
With the Pound about to enter a potentially extremely volatile period as Article 50 is triggered GBP/EUR rates could be trading according to my research, anywhere between parity and 1.20. I personally expect a range between 1.10 and 1.20 more likely but the potential for surprises and shocks on this path is high. There isn’t a huge amount of Eurozone economic data this week so I see GBP/EUR as more influenced from a sterling perspective. The exception could be this evening’s French election TV debate at 9pm Paris time which could prove very interesting after the ‘lone-wolf’ terror incident in Paris this weekend. With Le Pen seen as more experienced the scope for Euro weakness must be considered.
The French elections will now become ever more important and could well influence Euro rates. Whilst the polls have been so famously wrong in recent years we must take note of them as financial markets certainly do. According to the latest polls Le Pen currently win the first-round at 26% versus 25% for Emmanuel Macron, with 3rd place Fillon scoring 18.3%. French politics sees a second round for the two highest scoring candidates two weeks later on the 7th May if no candidate wins over 50% in the first round. Assumed to be Le Pen and Macron or Le Pen and Fillon in the next round, Le Pen falls short gaining around 40% with either Fillon or Macron attracting 60%.
This gap could easily change, events such as this weekend’s Paris incident are exactly the kind of event that could play into the far-right’s hands. However at this stage Le Pen is not predicted to win so I would expect the Euro to weaken on the back of any polls that show any improvement in her standings ahead of the first round in April before strengthening assuming she doesn’t win.
Whilst I can see a real temptation for Euro buyers with Pounds to hang on for improvements around this time, there is no telling how the Pound will be performing once Article 50 is triggered. The Dutch election failed to spark the Euro opportunities we might have hoped would help Euro buyers, the same may well turn out to be true for the French elections.
Get in touch with your broker if you have an upcoming requirement for the Euro, as uncertainty around the French elections may provide opportunities for Euro buyers and sellers. Call us on 01494 725 353 or click here to sign up to an account, and one of our brokers will be in touch.
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