The impact of Brexit will likely impact the Euro in the weeks to come, as the EU come to terms with losing one of their largest net contributors, problems begin to surface in Italy's banks
The Euro has been one of the main benefactors of Sterling’s downturn, making huge gains as a result of the economic and political uncertainty surrounding the UK at present. With so much focus on the pitfalls currently facing the UK economy, the current mire facing the EUR rates has been somewhat forgotten. The EUR has seen its value diminish against every major currency apart from Sterling and to me, this indicates a worrying trend.
We need to remember that the EU has lost one of its most integral members and this has sent shockwaves through the market. The EUR is benefitting from a lack of investor confidence in GBP, not an overriding belief in the single currency. At some point this will start to be mirrored on GBP/EUR rates and therefore clients holding Euros should be taking advantage of the huge spike they’ve seen, to some of the best levels for converting euros to pounds in 5 years.
European Central Bank (ECB) president Mario Draghi has been upbeat for much of the year regarding the Eurozone recovery but his tone has changed since the Brexit decision, as he is well aware of the negative knock on effects this could have on the Eurozone region. Their interest rates are currently sitting at 0%, so any further rate cuts will certainly spook the market. With question marks over how effective their current Quantitative Easing (QE) programme has been, expect the EUR to come under further pressure over the coming months.
We also need to consider that one of the main detriments to the Eurozone over recent years has been the economic problems facing Greece and with rumours that they are struggling to meet their next repayment deadline, expect EUR weakness once the media spotlight switches.
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