Euro finds favour but for how long?

Yesterday a raft of positive economic news across the Eurozone helped lift the single currency to very close to 2017 highs against the Pound and the US Dollar. Industrial output across the Eurozone for November of 2016 registered 1.5% against a prediction of 0.5%. This has led many economists to raise their growth forecasts for the Eurozone in 2016 and shows it isn’t just the UK which has been enjoying better economic data.

Similarities with the UK don’t stop there as the Eurozone will soon too come under the spotlight from political concerns. We had a taste of this in December with the Italian Referendum. With a series of elections in The Netherlands, France, Germany and maybe Italy economics will take a back seat as investors nervously eye speculation that key countries in the Eurozone could threaten core principles of the EU and the Euro. This begs the question should I be holding on to buy my Euros with Pounds?

Well aside from political events next week we get the latest Inflation data on Wednesday and Thursday the ECB Interest rate decision meeting. I would expect Inflation remains strong and the ECB will pat themselves on the back for the measures they have taken to raise Inflation, further helping the Euro. What about the political uncertainty in the Eurozone?

The first pressing issue is the Dutch election on March 15th although the chance of the Dutch leaving the Euro or EU are extremely slim as Geert Wilders (a Dutch version of Nigel Farage) and his party are highly unlikely to get a majority the way Dutch coalition politics operate. In Italian politics Gentiloni the current PM who has recently recovered from a heart procedure should remain in power. No Italian elections are scheduled until 2018. Whether snap elections are called will depend on whether a new law on electoral reform can be passed in the coming months.

In France, elections are the 23rd April for the first round and if no candidate wins a majority, there will be a second run off on May 7th. Markets will be keeping an eye on this but I doubt it will feature too heavily on GBP/EUR until April as in March markets will I believe be focused on the UK and the triggering of Article 50. Much later in the year German elections are scheduled for September but trying to predict this now is tricky since this is many months away.

GBP/EUR Analysis – when should I buy Euros?

Whilst all of the above events do present potential cracks in the multi-year highs the Euro is enjoying against the Pound, it appears to me GBP/EUR buyers will continue to find challenges as Sterling paints itself into a corner over uncertainty over the Brexit. Euro buyers are correct to identify political uncertainty in the Eurozone to help them but as we have seen this week that strategy can also be costly. If you are planning a property purchase or invoice payment in the next month or two and looking to buy Euros I think the planning should start now.

Whilst I would agree that yes at some point the Euro will weaken from political uncertainty it is a very dangerous strategy to ignore the Sterling risks hoping for weakness in the Eurozone that might not happen for 3-4 months. Such strategies make an assumption the pound will be performing at a solid level but with so many outside risks including a reversal of the Trump effect and news on Theresa May’s Brexit strategy a more defensive strategy seems best in this market for Euro buyers.

On exchange rates we are now getting used to expecting the unexpected and nothing should of course be assumed or taken for granted. But despite 2017 potentially offering up some pockets of Euro weakness I feel GBP/EUR buyers should be very careful of not assuming too much and making a bad situation even worse.

Euro sellers should continue to find lots to be happy about but the political challenges longer term could give some food for thought about the multi-year highs that are on offer at present. As always the best way to mitigate the uncertainty is to keep in close contact with our experienced and knowledgeable team here who can guide you through the market and the latest developments.

Pound to Euro exchange rates will remain volatile throughout 2017, and those with a Euro or Pound buying requirement may benefit from talking through a strategy with one of our experts. Call today on 01494 725 353 or email jmw@currencies.co.uk.

News

Read more articles
Exchange rates on this page are interbank rates and indicate where the market is trading to show the performance of a currency pair. They are not indicative of the rates which we offer. The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.