Amelia Spencer
Affiliate Relationship Manager
Euro benefits from political uncertainty in UK and US
Trade negotiations and cross party talks push investors towards the ‘safer’ euro.
Request a quoteThe euro strengthened against the pound and US dollar yesterday afternoon, with GBP/EUR interbank rates breaking through into the 1.15’s and EUR/USD interbank rates hitting 1.1252 for the first time since the beginning of May.
| Currency Pair | % Change (Month) | Difference on £200,000 | |
|---|---|---|---|
 GBP |  EUR | 2.4% | €5,560 |
Yesterday’s announcement from UK Labour leader Jeremy Corbyn suggesting that the recent cross party talks between Labour and the Conservatives hadn’t been going as well as they had hoped, prompted the pound to fall sharply, and helped the euro to regain some of its losses seen earlier this week, after GBP/EUR rose to the highest point in 2 years on Sunday evening.
The euro also benefitted from investors moving funds away from the US dollar yesterday after 2 days of trade discussions between the US and China began yesterday. The trade war had recently simmered until last weekend when Donald Trump announced the implementation of 25% tariffs on $200 billion worth of Chinese goods would commence today, although China has pleaded with the US to meet them in the middle. Although discussions continue today, talks have so far not looked promising, pushing investors to move away from the riskier US dollar.
Long term knock on effects of trade war on European car exports
However although the euro seems to have benefitted from the uncertainty surrounding the US and China trade talks in the near term, concerns are mounting that it could have a negative impact on an already weak automotive industry, something which the German economy in particular relies upon heavily. European carmakers, and their suppliers, are already struggling with a downturn in demand, as sales slowed for the ninth consecutive month in April. China is the world’s largest car importer, and if the slowdown continues, it could have extremely negative consequences for the European economy.
This morning could be significant for GBP/EUR rates as the UK release its Q1 Gross Domestic Product figures which are expected to show an improvement, however if this data disappoints, we could see further gains for the euro. Likewise, if the data is positive as expected, this could cause the euro to fall back towards levels seen at the end of last week. European GDP figures will be released on Wednesday next week and is expected to match the previous reading of 1.2%. If you wish to plan around these events, please feel free to get in touch with your Account Manager here today.
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