GBP/EUR – At present there seems to be little hope for Sterling rising in value against the majority of major currencies. The main anchor for the pound is the fact that a Brexit “no deal” scenario is still on the cards, while this is still a possibility I think there is little hope for Sterling to gain significant ground.
There could however be the chance of Euro weakness. If the Turkey situation escalates this could well hit the Euro. There are several large European Banks who are owed substantial sums of money from loans to Turkish business. BBVA, BNP Paribas and Unicredit are among those owed.
The problem is due to the rapid fall in Turkish Lira and the ongoing strengthening of the US Dollar. The loans were predominantly taken out in US Dollar and now due to the currency differential the debts are now substantially more expensive.
Inflation is also rising rapidly and President Ergdogan has been extremely stubborn in regards to trying to counter the effects through a change in interest rates. A central bank is meant to act as a separate entity to the government, but with the appointment of Erdogan’s protege and son-in-law in charge of Turkey’s economy there seems little chance of any counter measures against inflation.
Qatar has just provided $15bn in financial aid which has eased the problem, but if the International Monetary Funds (IMF) needs to get involved this could send shock waves through the market and the Euro could lose value.
If you are sitting on Euros at present and are moving back to Sterling I would take advantage of current levels. I think there is potential for further gains for the Euro due to the lack of clarity surrounding Brexit, but looking at risk verses reward I would be taking advantage of current levels, we sit at a yearly high for Euro sellers.
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