The re-election of Angela Merkel could now happen on the 14th of March, following the agreement in principle from the SPD to form a coalition Government. This could mean the end of the current political instability in Germany which is likely to mean strength for the Euro. The table below shows the difference in Euros you could have achieved when buying £200,000.00 during the high and low points during the past month.
|Currency Pair||% Change||Difference on £200,000|
The Euro’s value has been climbing recently against the Pound. GBPEUR rates fell on Friday to the lowest levels seen for a 30 day period even against a worsening picture from the Europeans. Germany, seen as the ‘engine room of Europe’ released their latest business confidence figures which fell more than expected in February in response to domestic political uncertainty and market volatility. We even saw German retail figures drop and overall Production Price index too.
German politics has been in the background for some time as they try to form a government, but has recently come to the forefront and is driving markets once more. The German Social Democrat party (SPD) has in principle agreed to re-form a coalition government with Angela Merkel’s party for another term. This however has to be voted for by the SPD’s 464,000 members in the form of a postal ballot. The ballot closed on Friday and results show that the members endorsed the coalition deal with a 66% majority, a bigger margin than expected. Re-election of Merkel for the fourth term will now probably happen on the 14th March and should conclude this round of political uncertainty in Germany and with it give the EURO strength making it more valuable and expensive to buy.
Over the weekend Italy held their own elections in an effort to form a Government. Immigration has been a key part of the campaigns as Italy has taken in nearly 600,000 immigrants over the past 4 years. This influx has caused the traditional parties to dramatically fall in popularity and new anti- European parties to rise up, diluting party power and resulting in no clear winner being announced. At the time of writing the leader currently is the Five Star Party which is a populist anti-European group. Potentially however, once all votes are counted a coalition government could have more political seats and form a government. This would be between a number of centre-right parties cobbled together by the former Prime Minister Silvio Berlusconi.
In this time of uncertainty many expect the Euro to weaken but most commentator’s expect a government to be formed shortly and for the Euro to recover just as quickly. As a result, anyone with currency exposure should keep an active eye on this topic and may wish to take advantage of the better levels available now before political clarity returns to Italy.
I expect political updates from Italy and Germany to be the main driver for the Euros value this week but also watch out for European Service and Market PMI released at 9am today.
European GDP figures are also released on Wednesday morning and are expected to show another improvement, likely to make the Euro more expensive if confirmed. Lastly look out for the European Central Bank (ECB) meeting on Thursday, personally I think the latest political situation within Italy could dictate the level of information the bank releases on the topic of the central banks policy on QE. The question on QE tapering will return on Thursday and is yet another risk for Euro buyers as if confirmed will make the Euro dearer to buy.
For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email me here.
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