EU Gross Domestic Product figures released this morning arrived as expected at 2.5% year on year and at 0.4% on the last quarter which helped support Euro exchange rates. The Euro faces a testing period ahead with the trade tariffs that have been imposed by the US on European exports. Donal Trump has levied a 25% tariff on steel imports from the EU and a 10% tariff on aluminium. The European Union are now looking to reciprocate with a tariffs to the tune of €2.8 billion on American exports which could escalate into a mini trade war between Britain and the US. Clients looking to buy or sell Euros should pay close attention to these developments as any changes are likely to impact on the Euro.
The Euro is also facing pressure at the moment following the new government that has been formed in Italy. Both Italian parties the League and the Five Star movement have expressed their willingness to cut taxes and increase spending which both clash with the policies of the EU. There are also reports that Italy are writing to the EU to request that €240 billion be written off, something that Germany has insisted is not possible now. Expect more volatility for the Euro as developments unfold from the new coalition government in Italy.
The most important driver for EUR GBP exchange rates however is the ongoing Brexit negotiations which are at a key moment almost two years later since the referendum 23rd June 2016.
The House of Commons vote next week on the Brexit withdrawal agreement could throw up some surprises to which there could be a substantial market reaction for the pound.
Clients looking to buy Euros may wish consider taking the risk out of the markets as aa series of defeats if they happen could spell problems for the Prime Minister. If however she is able to plough through without harm then there could be some renewed confidence in sterling exchange rates. This in my view has the potential to be a big market mover.
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