Now Article 50 has been declared the GBP/EUR exchange may finally gets a chance to break free from the recent ranges it has been trapped in. Expats looking to transfer funds overseas from the UK might find some turbulent months as markets try to make sense of this historic event.
There is no precedent here and there is no clear view as to whether the Pound will rise or fall now Article 50 has been triggered. So far, the Pound has found support against its Euro counterpart primarily due to the strong run of economic data that continues to suggest a resilient economy. Furthermore, the removal of Brexit uncertainty has also contributed to this as markets begin to backs the UK Government’s longer term plans. GBP/EUR is now trending at 1.17 at the time of writing, up 2 cents prior to the declaration of Article 50.
Whilst the removal of this uncertainty has given Sterling a fighting chance, there could however be negatives to follow as it will confirm that the UK’s departure is set in stone. We will then enter a period for the Pound where attention will centre on the cost of the UK’s bill for leaving the EU, as well as sentiment around negotiations that are yet to unravel. All of this will become clearer in the weeks and months ahead, however, Theresa May has previously stated no running commentary will be given on Brexit which only adds to the level of unpredictability.
April 23rd sees the first round of the French elections which could well see heightened Euro weakness as we get closer to the vote. Polls ahead of the election are indicating that it will be a Le Pen victory in the first round before losing in the second to either Macron or Fillon. The Euro should be much weaker around this time but assuming Le Pen is ultimately unsuccessful the Euro would then strengthen back.
If Brexit was seen as a good thing then why is the Pound down so much against its counterparts? Whilst there is scope for the Pound to improve I do see the rate coming under pressure. I would be anticipating lows of between 1.10 and 1.11 if the market reacts negatively whilst the highs could easily see 1.16 and 1.17 broken.
In April the attention will be on the French election so a range between 1.15-1.20 may develop. Depending on the outcome of the French election and subsequent negotiations I would see GBP/EUR breaking 1.20 if Le Pen was to get in and the Brexit is viewed favourably by the market. Expats might understandably be concerned over the prospect of a Le Pen victory but at the moment Macron is the favourite and his support has grown since Monday’s televised debate. However if Macron or Fillon win and we see Brexit negotiations sour for the UK I expect the market to come right back down with a floor of 1.10.
Due to the complexity and severity of the upcoming events the potential for some big movements for GBP/EUR seem high. Overall I expect GBP/EUR to find some support in the near term before falling on negative headlines. April should see the market at a higher rate owing to the French elections before the outcome splits the rate closer to 1.10 for Macron or 1.20 for Le Pen. Euro buyers might wish to take advantage of any levels in the higher teens from now until the French elections.
Those exchanging Euros for Pounds should be content to get any rates better than 1.15 with rates closer to 1.10 highly recommended to capitalise on.
Jonathan Watson is the Chief Market Analyst and Associate Director here at Foreign Currency Direct. Jonathan offers a wealth of knowledge on the currency markets having worked as a trader for almost ten years, offering his expertise to both clients and businesses alike. If youd like to contact Jonathan you can do so by emailing firstname.lastname@example.org.
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