The ongoing Brexit saga is a major concern for clients buying euros with sterling, however a no deal Brexit is also a major problem for the EU and therefore clients that need to sell euros to buy another currency. Economists are suggesting that Ireland will face a major slowdown due to the amount of trade that will grind to a halt if a hard border appears on the Ireland of Ireland.
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Furthermore, Germany, Netherlands and France's economic activity could also show a major contraction due to the amount of trade the three countries have with the UK. Last year alone the UK imported $143bn worth of goods from these 3 countries which accounted to 28.4% of the UKs imports. For more information in regards to the UK and EU's trading partnership, visit the Observatory of Economic Complexity (OEC) website .
Global trade wars is also a major concern for Europe and therefore the value of the euro. The Chinese economy is slowing faster than many economists predicted due to the ongoing trade war between China and the US. Q4 growth numbers for China were the lowest growth numbers since the financial crisis in 2019. China is the EU's second largest trading partner and with the Chinese economy slowing this means European exports are also going to slow. If it’s the case the Chinese have no choice but to ease off on the amount they are buying from Europe due to the strain of the trade war and the UK end up crashing out of the EU, countries like Germany that exports millions of cars to the UK and China have a serious problem on their hands.
For clients that convert euros into sterling, there is argument to suggest that current exchange rates don’t reflect the problems the Eurozone is facing, as the Brexit saga is having more of an impact on the value of sterling than the euro at present. However to understand the euro's recent demise, clients should look at the EURUSD currency pair. EURUSD is the most traded currency pair globally and currently is trading at an 18 month low.
It’s a busy week for European data releases. Germany is set to start the week on Tuesday when they release the latest ZEW sentiment survey. This data release is set to rise slightly from -15 to -14. Later in the week on Thursday, PMI data will be released. Manufacturing is set to fall but services is set to rise. If this occurs, you would expect one to counteract the other. Also on Thursday, the European Central Bank will release their latest minutes.
In recent weeks ECB members have remained fairly dovish due to the slowdown the Eurozone is experiencing; if the council has discussed the chances of interest rates hikes and the chances of a hike this year has diminished, it could be a bad day for the euro.