The UK's decision to leave the EU will have an impact on both the UK and remaining EU members. Sterling lost further ground against the Euro last week with positive Manufacturing PMI hitting its pre-Brexit levels.
The Euro hit a 5-week high against Sterling as fresh Brexit worries and the lack of any interest rate rise in the US benefitted the Euro. The Pound and Dollar both gave up ground towards the end of the week helping bolster the single currency. There was also positive economic news for the Eurozone as the latest Manufacturing PMI (Purchasing Managers Index) hit pre-Brexit highs.
The data also suggested order-inventory balances were at highs not seen since 2010 indicating the data is likely to improve further over the coming months. This was in contrast to Services PMI data which showed a fall to an 18 month low although the reading of 52.6 (on a scale of 1-100) still represented growth.
The Euro’s good run of form may continue this week with Inflation data published on Friday which due to the rising oil price is likely to show an increase. Inflation has been the hot topic for the Eurozone this year with the ECB (European Central Bank) rolling out an extensive QE (Quantitative Easing) program this year to combat deflation – the threat of falling prices. QE is generally speaking negative for a currency since it reflects an increase in the money supply and is reflective of a weak economic outlook. The current QE program runs out in March 2017 and despite Inflation likely to pick up, many commentators are predicting it will need to be extended.
Mario Draghi has a speech today which will be closely monitored for references to the QE program. The QE program has been a bone of real contention for some within the Eurozone. Notably Germany who has contested the legality of the operations. Draghi has so far stated he doesn’t feel extending the QE program will be necessary, any deviation or confirmation of his position should move Euro rates.
The Pound’s recent run of form which saw it almost test 1.20 only 2 weeks ago has quickly reversed with the lack of clarity over Brexit still weighing down on Sterling. It could be many months, maybe years before we get some real clarification of what Brexit will mean for both the UK and the EU. Therefore establishing firm trends on GBPEUR is likely to be as tricky as working out what the deal will be. A review of some of the major banks predictions on GBPEUR doesn’t offer much hope with two key players separately predicting 1.08 and 1.20 by the year end. Clients buying Euros with Pounds should not be too hopeful of a marked recovery and clients selling Euros to buy Pounds should be careful being too complacent.
Keeping in touch with your account manager to identify the short term movements on rates is key to maximising the exchange rate you receive. Speak to your personal account manager today on 01494 725 353 to highlight any pending exchanges so you are not caught out.
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