The weekend has seen a series of arrests in France as political uncertainty puts Macron in the spotlight once again. The euro has held its own so far but investor confidence in the region could easily suffer if Macron cannot get a grip on the situation. The French PM came to power on a promise to revitalise the country, voters are feeling disgruntled at rising living costs eschewed by the recent yellow vest (gilets jaunes) protests over fuel tax.
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The euro has performed very well in recent years following cohesive Government across Europe working together to turn the tide following the debt crisis period in 2011-2014. Macron was representative of this sentiment but with his unpopularity growing, and Angela Merkel, another key figure representing these values on her way out, the future direction of the Eurozone is under question.
The success of extensive monetary policy from the ECB (European Central Bank), has also been partly responsible for the previous confidence in the Eurozone. This Thursday is a key date for the euro with the latest ECB interest rate decision where the Central Bank are expected to wind down their QE, Quantitative Easing plan.
Markets are fearful however over whether the ECB is being too bold in its plans. Recent economic data from Germany has suggested the economy is not performing as well as expected, and many are worried that Italy could be headed for a recession.
Add to this the uncertainty over how the Eurozone will handle the Italian budget standoff and also concerns over Spain and other country’s politics, and there are many reasons for the ECB to be more cautious. The ECB could very easily be forced to backtrack on their plans which would see the euro weaken.
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Pound to euro rates have been extremely sensitive to Brexit news. All of that has come to an end and the pound is already lower, I would expect a very volatile week ahead with the key UK Parliament vote and also the ECB decision on Thursday.
It might be that the pound is weaker at the beginning of the week, before making a recovery later in the week if the euro becomes unsettled. Events on sterling are very difficult to predict however and the fallout from tomorrow’s vote might well continue to Christmas or even 2019.
GBPEUR levels could change rapidly over the course of this week as the market has to react to a series of highly important and ever-changing pieces of information. If you have a position to buy or sell the pound against the euro it might be wise to speak to your account manager today to ensure you are kept fully up to date with the latest news and forecasts.