The EUR has found support against Sterling this week, as fears grow regarding the UK’s upcoming Brexit and what deal will be in place following the triggering of Article 50.
UK Prime Minister Theresa May has stuck stringently by her deadline of this month to trigger the bill but this was thrown into some doubt following recent reports that the House of Lords made their first major amendment.
They went against the House of Commons and voted to guarantee EU citizen’s rights, news which immediately caused investors to panic and pull their funds away from Sterling. Following further changes, we could now see this passed back to the House of Commons to ratify the amendments and a game of political ping pong could entail. Despite the general consensus that the bill will be passed as expected, even the slightest hint of uncertainty has knocked the Pound.
This in turn has inadvertently boosted the EUR value but what is key in my opinion is that this was due to a lack of confidence in the UK economy and its future growth, rather than an overriding positive feeling regarding the Eurozone. I would be wary about gambling on a major spike for the single currency, as when you look at current EUR/USD rates it is obvious investor confidence in the single market is low and as such any positive developments regarding Brexit could boost Sterling and this week’s EUR gains could be quickly eliminated.
With key elections in France, Germany and the Netherlands and support for far right parties in each of these countries, it is clear that all is not well inside in the EU. As with the UK’s unexpected decision to leave the EU has proved, along with the appointment of President Trump, the expected result does not always come to fruition and it is clear that some people are searching for change.
Any uprising across Europe is likely to sap investor confidence in the single currency further and the current rates against the Pound in particular, could look extremely attractive in months to come.
This view is even more poignant when you consider recent developments in Greece, who once again are coming under the spotlight due to fears they simply cannot service their ever growing debt repayments and as such they may have no choice but to leave the EU further down the line, news which would likely send shockwaves through the market.
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