Political and economic issues likely to handicap Euro exchange rates

The Euro has performed valiantly over recent months, making huge strides against the Pound. This has come in line with the UK economies demise, due to the now infamous Brexit decision. This run has pushed it to near five year highs against Sterling and a two-year high against the US Dollar. However, this momentum seems to have halted over recent weeks, with both of the aforementioned currencies seeing marked improvements against the single currency.

Sterling gained a foothold around 1.10 and has not looked back, with further improvements last week following Donald Trump’s victory in the US election and the potential trade deals this will bring with it (as discussed earlier in my report). The USD has also spiked and gained support under 1.10 and it now seems as though Euro sellers may have to accept that the peak was reached and react accordingly, following the slight downturn we’ve seen.

What are the potential pitfalls facing the Eurozone?

Whilst it is impossible to predict exactly how the market will develop, my view is that there are too many potential pitfalls in the Eurozone to have any real long-term confidence in the region and if these economic issues start to manifest themselves, expect the Euro to weaken as a result.

My primary concern surrounds the triggering of Article 50 and the knock on effect this will have on the EU, who will be losing one of their integral members. There is fear amongst key figures that this could lead to a potential domino effect, with other countries potentially considering their status in the single union if the UK can negotiate a good deal following our Brexit.

We must also consider that there are key political elections in France & Germany next year and with a feeling of unrest throughout both countries, will we see a change in government and in tandem future policies? The uncertainty this will create is likely to sap investor confidence and the Euro will more than likely suffer against both the Pound and the US Dollar as a result.

This leads me to believe that any clients holding the single currency should be considering their position, as it is unlikely we will see the Euro return to its recent highs and with so much scope for further losses when you consider recent history on both GBP/EUR and EUR/USD rates, the current levels could look extremely attractive in weeks and months to come.

Key economic data for the Eurozone

Looking ahead to this week and the market will be keeping a close watch on some key economic releases. Today we have the latest Industrial Production figures, with a previous figure of 1.6% MoM likely to guide the markets.

Tomorrow we have Trade balance data and also possibly the biggest release of the week, with the latest Gross Domestic Product (GDP) figures. This will give us an insight into the current economic climate inside the Eurozone and provide us with information about potential future growth and economic prosperity within the region.

Thursday sees the release of a host of inflation data followed on Friday by European Central Bank (ECB) President Mario Draghi’s speech. Draghi has been fairly bullish of late with his comments so will this continue based on the recent downturn for the Euro?

Clients holding Euros can still benefit from the highs since Brexit but it may be prudent to make a transfer sooner rather than later. Call us today or email me here if you'd like to discuss a transfer.

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