With the news that Theresa May will trigger Article 50 ahead of the European elections next year, Europe’s reaction to the news has been somewhat mixed. One French paper praised May for her firmness on the issue of Brexit negotiations whilst others criticised her for a lack of ‘direction’. The news has also had some impact on Sterling’s value, with GBPEUR exchange rates losing a cent since the weekend. In the short term, exchange rates are likely to take a further hit as investor confidence in the Pound diminishes further from a lacking Brexit strategy.

Whilst Euro sellers are now enjoying 3-year highs against Sterling, tables could begin to turn as we enter 2017. Much of the current movements are not due to a stronger Eurozone but a reaction to the Brexit vote. Euro sellers should therefore be aware of the potential pitfalls within the single economy.

The European elections could throw out some new winners, immigration is becoming a hot topic amongst a number of right-wing parties and it is growing in momentum. Hungary have recently passed a referendum to block EU migrant quotas by an overwhelming 98% as set out by Angela Merkel.

Switzerland must also act upon their 2014 Referendum to limit free movement. A task that is unlikely to materialise whilst accessing the single market.

Whilst Deutsche Bank is the latest bank ‘victim’ of fines for its mis-selling during the financial crisis, it would not be the first bank this year to face challenges. Angela Merkel took a tough approach to the Italian Banking concerns earlier this year, and now could face the choice of bailing out a bank much closer to home.

It’s looking more likely that the UK could be exiting the single market entirely which could have implications for European nations that export to the UK, the manufacturing of German cars for example. It also means the EU will need to plug the financial hole of losing one of its largest net contributors.

ECB policy meeting to cause market volatility

Following on from Mario Draghi’s meeting in Bundestag last week, German politicians criticised Mario Draghi over his handling of the Eurozone and the ECB’s monetary policy.

Draghi has on many occasions defended his position by stating that individual nations are responsible for improving the overall economy of the Eurozone, and that the ECB can only do so much in stabilising inflation. But how long can Draghi continue to reiterate this point to the powerhouse of the EU? Germany is one of the few countries within the EU that does not benefit from super low interest rates set by the ECB.

There could well be further hints as to how the ECB plan to tackle stagnant inflation on Thursday, with further QE or at least an extension on its current plan likely in the near future. And with Brexit still the major concern for the Eurozone, the ECB may have no choice but to act.

Data is quite light for the Eurozone this week, with much of the GBPEUR movements falling on Theresa May’s announcement and any potential hints from the ECB on monetary policy. Stay in touch with your broker regularly as further updates on Brexit could impact exchange rates this week.


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