With much of the GBPEUR weakness being held accountable by the Brexit vote, we discuss whether problems in the Eurozone could change the direction on exchange rates.
Today’s speech by the European Central Bank (ECB) President Mario Draghi is likely to have an effect on Euro exchange rates and as such, those clients with Euro requirements should be keeping a close eye on market developments this afternoon. Mario Draghi often has a tendency to surprise us and if I was holding Euros I would be keen not to lose the gains I’d made over the past few months.
Whilst Sterling remains under pressure due to how fragile the UK economy remains, the current trend will not last forever. In fact there were reports yesterday that in fact the UK economy is likely to prosper within five years of leaving the EU and whilst this is still some way off, any positive rumours could well give the Pound a boost, especially when you consider that much of the negative forecasting has now been factored into GBP/EUR exchange rates in my opinion.
This was backed up by reports surfacing yesterday that one of Germany’s biggest institutions Deutsche Bank’s share prices have plummeted, sparking fears that it could collapse. Angela Merkel has already stated that they will not come to the banks rescue with a bailout package and this is hardly news that is likely to spread optimism amongst investors, and the EUR could suffer as a result.
For those clients looking for key market triggers this week beyond Draghi’s speech today, then look no further than tomorrow’s Industrial and Consumer Confidence figures. These are expected to show a small drop and if this is the case then further EUR improvement is unlikely, another key reason to protect yourself ahead of this key release.
The economic data does not stop there however and perhaps the most important day of the week will be Friday, due to the release of the latest UK Gross Domestic Product (GDP) figures and the official Eurozone Unemployment rate. With UK GDP expected to remain unchanged at 0.6% and Eurozone unemployment expected to fall from 10.1 to 10%, expect the EUR to move depending on how the aforementioned data comes out.
Whilst it is impossible to say exactly how future data will be released, or how the current volatile market will develop my key point to all clients holding EUR is that they should be looking to take advantage of the current near four year highs, rather than gamble on further improvement when the Eurozone economy itself remains full of potential pitfalls that could weaken its current position.
With the above in mind, those holding Euros may want to pay particular attention to economic data on Friday. Whilst Draghi remains positive about the Eurozone following the Brexit vote, inflationary figures on Friday could put his views to the test. Speak to our knowledgeable brokers on 01494 725 353 to discuss your upcoming requirements.
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