This report will examine the factors that could affect exchange rates this week in order to help you stay informed if you need to make a currency transfer.
Yesterday, Sterling broke through 4 month highs against the single currency rising by nearly 2% over the course of the afternoon with investors buoyed by PM May’s call for a snap election on the 8th of June. Key European figureheads Deutsche Bank called the decision a game changer for the currency and has said it will draw them to reconsider their forecasts short to mid term.
Where investor appetite seems to be growing with the Pound I am not sure the Euro has ever looked more fragile amid the political uncertainty emanating from the single market, with the French elections still being the main driver. As we are just 5 days away from the first round and momentum seemingly growing with the extreme options in Melanchon and Marine le Penn, I wouldn’t be at all surprised if we see GBP/EUR rates break through the 1.22 mark this week. The implications of a 2nd round face off between the two would be the worst possible outcome for Euro holders as both are pushing for France to revert back to the Franc and pull out of the single market. Investors will be looking to hedge their bets and I would urge those with an immediate Euro selling requirement to do the same sooner rather than later to limit your exposure.
According to the polls there is a mere 6% difference between Melenchon, Macron and Marine Le Penn. A recent BVA poll suggested that 14% will decide their vote at the last minute. As a result, I certainly wouldn’t be leaving anything to chance. Particularly as there are a number of stories that can reinforce MLP and Melenchon’s case for getting through the first round. Whirlpool being the latest French Multinational to close its last factory on French soil after moving its base to eastern Europe for cheaper labour. We saw how powerful protecting jobs proved to be in Trump’s successful campaign last year, will Melenchon be able to ride the populist wave into the 2nd round in similar fashion?
With so much promising to weigh on the Euro, it would be understandable if those with a short-term Euro requirement are considering weighting for all this political uncertainty to take its toll in a bid to stretch their returns. I would however urge those in this position to consider weighing up the risk vs reward in committing this strategy.
The market has temporally limited its exposure to Euro aiding GBP/EUR hit 4 month highs. However, pro Euro Macron is still favourite to win the second round of the French elections, and as we draw closer the markets will potentially price this in and restore faith in the Euro. Yesterday’s spike provided our well-informed clients an extra 4,200 € on a £200,000 transfer.
All it could take is some healthy economic data to come out of the Eurozone for those gains to be reversed. Why not open a free account here at Foreign Currency Direct to discuss your options. Alternatively, why not speak to one of our experts for peace of mind on 01494 725 353.
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