Expectations for the euro have been mixed following increased political and economic risk in 2019. I foresee the euro coming under further pressure as investors await further developments in increasingly less positive economic and political conditions. Attention was on Spain yesterday as the trial of 12 Catalan separatists began. This was following the attempted independence bid and what was deemed an illegal referendum in 2017 for Catalan independence.
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The Spanish Government has a slim majority, and in pursuing this trial risks unsettling the Catalan separatist parties that have propped the Government up in coalition. This could trigger early Spanish elections in April and would undoubtedly weigh on confidence in the Eurozone and the single currency.
When you combine this potentially worrying news with the rising popularity in France of the gilets jaunes, and unpopularity of Marcon, the European elections in May begin to look very interesting. Economic news is also a concern with Italy in a recession and Germany not too far behind. Donald Trump has threatened tariffs of up to 25% on European cars, which would only add further weight to the concerns on the euro, as it would majorly affect the Eurozone.
In other economic news, Governor of the Dutch Central Bank Klaas Knot has stated he believes the ECB should pause in its plans to remove the Quantitative Easing (QE) stimulus. In being tipped to succeed Draghi his views are being monitored and such a policy would see euro weakness ahead.
GBPEUR levels are once again seesawing as investors await the definitive news on what kind of Brexit we will see. In a speech yesterday Mark Carney highlighted the very real risk of no-deal which could see sterling lose ground. Theresa May has bought herself some more time in promising a more meaningful vote on Brexit and her deal, by the 26th February.
Sterling will largely be driven by Brexit sentiments; I still believe a deal is likely and that a middle way ‘fudge’ will be the most likely outcome, with sterling rising. Markets will have to continue to price in a no-deal, and this will until an impasse is found, see sterling remain on the back-foot.
Today we have the latest Industrial and Manufacturing data for the Eurozone at 10:00am, before Eurozone GDP at 10:00am tomorrow. With UK data having come out this week worse than expected for Q4 in 2018, it will be interesting to see how the Eurozone is shaping up, and see how this influences GBPEUR.
GBPEUR is remaining fairly midrange as investors eye up the next direction from Brexit developments. Now is the perfect time to review any GBPEUR positions to ensure you are not wrong-footed when the next unexpected and likely once again volatile movements take place.
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