Although I feel there is the potential for further Sterling weakness over the coming months it may be wise not to procrastinate too long in the hope of small gains if you are a Euro seller.
Brexit is definitely weighing down Sterling at the moment and the uncertainty surrounding the UK’s economy could well last for some time. However, the Euro is far from stable.
There are numerous reasons why we could see the Euro drop quickly and heavily. First up, let us look at Greek debt. This has not been front-page news for some time but the problem has not gone away. The lack of tax payment in a largely cash economy has caused almost insurmountable problems for the Greeks. They are struggling to make repayments to the International Monetary Fund. It raises the question, How long is it before the Greeks have to exit Euro?
Next, let us look at the problems with inflation. Mario Draghi the Head of the European Central Bank is currently coming under considerable pressure to lengthen the current Quantitative Easing (QE) Program and possibly increase monthly increments. QE is essentially pumping money into an economy in order to stimulate growth; it is very questionable that the program is having an effect. Interest Rates are at virtually zero and there seems no hope of growth. This is another potential big problem for the Euro.
Italian Banks could also cause significant problems for the Euro Zone with current bad loans in excess of €360bn. Action was not taken as the problem worsened and if this situation is forced to be addressed expect the Euro weaken.
Let also look at the possibility of further referendums, which could be a distinct possibility with the growing backing of far right groups in several Countries within the bloc. If another Country leaves could it create a domino effect.
Yesterday saw the release of Eurozone GDP figures and data came in as expected and caused little movement for the Euro. Today we will see Consumer Price Index (CPI) data. CPI is a measure of inflation and as mentioned earlier inflation is a key issue for the Euro Zone. I would be surprised to see an increase so I would not expect this to be a large market mover.
Following CPI, we have the ECB Monetary Policy Meeting Accounts. This meeting is an attempt to offer a balanced reflection of policy deliberations. It is meant to show rationale as to current monetary policies and can cause movement on the market.
Finally is Draghi’s speech on Friday at 09.00, this will be interesting as he will have to address monetary policy moving forward and no doubt will have to give an indication as to his plans for further QE. If there is the mention of further QE expect the Euro to fall in value.
If youre buying or selling Euros in the near-term, it may be worthwhile speaking with one of our brokers prior to Draghis speech on Friday. Call our trading floor on 01494 725 353 or email me here if youd like to discuss a currency transfer.
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