The potential effects of the hung parliament on the Euro have seemingly been nullified by the fact that Angela Markel was able to form a Government over the weekend. This Euro report discusses the effects the political uncertainty can have on the currency. The table below shows the difference in Euros you could have achieved when buying £200,000.00 during the high and low trading points of the past month.
|Currency Pair||% Change||Difference on £200,000|
Yesterday the Euro did come unstuck as concerns over a Trade War with the EU and US hit the Euro rate. This was rather brief and the market did settle but this could be an issue that might escalate in the future. With the EU relying heavily on its exports of cars and other products to the US, any tariffs or barriers by the US could negatively affect the excellent economic growth in the Eurozone.
Looking at recent political developments in the Eurozone and with votes now finalised we can see a hung parliament is the outcome from the Italian election. We did see some limited movements on the Euro yesterday but by and large this result was expected. Any weakness in the Euro from perceived as bad news in Italy appears to have been offset by good news from Germany as Angela Merkel was able to form a government over the weekend. Year on year Retail Sales increased yesterday in the Eurozone and all of the PMI (Purchasing Managers Index) releases were in positive territory underscoring the economic revival underpinning the strength of the Euro in the last 18 months.
These positives mask a troubling election result in Italy that has seen the Eurozone’s 3rd largest economy elect populist parties in over 50% of the votes. One reason for no discernible Euro weakness is that the two leading parties 5-Star and Northern League are not expected to work together. Instead Northern League who won 17.1% of the vote are leading the Right-wing coalition, this includes Berlusconi’s Forza Italia who won 14% of the vote.
Any signs 5-Star may work with the League could be viewed as damaging for the Euro, as might possibilities of another election. Expect ongoing, protracted negotiations whilst the competing interests struggle to establish a government. This uncertainty was largely priced into the Euro and as explained other positive news is for now outweighing these concerns.
Tomorrow at 10 am we have GDP (Gross Domestic Product) released. Economic growth in the Eurozone has been a big factor helping the Euro remain strong. The ECB (European Central Bank) decision on Thursday is I believe the most important event for the Euro. Investors will try to understand the potential for shifts in monetary policy from the Eurozone’s central bank. Any changes in tone or signs it might be viewing the strong economic recovery more positively could further help the Euro strengthen.
There has been much talk the ECB might look to further decrease their QE (Quantitative Easing) program this year or even raise interest rates. If the ECB hint at this the Euro may rise.
Thursday’s ECB decision is at 12.45 and then 13.30 is the Press Conference, if you are looking to sell the Euro soon this event could present a good opportunity, I would not be surprised to see the Euro stronger.
The biggest issue for clients buying Euros with Pounds is not so much Sterling strength although of course this is an issue. What clients buying Euros with pounds also need to note is just how strong the Euro is. The very fact it has not reacted negatively to the political concerns in Italy just shows how positive the market is viewing the single currency.
With Sterling strength linked directly to the progress (or lack of) on Brexit the EU summit later on the 22-23rd March might prove helpful. However, clients looking to buy Euros hanging on for big increases could be disappointed since there is still many months before we are likely to get the kind of clarity which would see a significant rise for GBPEUR. For more information on strategy buying and selling the GBPEUR pair, or any Euro exchanges please contact the team here for expert advice.
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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