We may be looking at Euro weakness in the near term. First, the bloc is currently experiencing the worst growth since 2014. Italy has just entered a recession, while the engine room of the Eurozone, Germany, has just narrowly avoided recession.
Spanish Trial could cause a drop in investor confidence in the Euro
The situation in Spain should be watched closely. The trial of 12 Catalan separatists has begun. They are in court following a Catalan independence bid that was deemed illegal in 2017.
The Spanish government is playing a risky game and only has a slim majority in pursuing this trial. They risk pushing away Catalan separatist parties that have supported the government in a coalition.
This has the potential to cause an early election which could be as soon as April. This would no doubt be a cause for concern amongst investors which in turn could create Euro weakness.
Euro rate forecast: gilet jaunes may weaken euro
There is also a worrying situation in France. There is rising popularity in France for the gilet jaunes, which is combining with a drop in popularity for Macron. The elections in May could prove interesting and will no doubt create volatility in the euro exchange rate.
In addition, there is the situation with Greece, which is seemingly being swept under the carpet, plus the ongoing trade war with the US. The Trump administration is threatening an increase of 25% in tariffs on cars. This would hit the Eurozone hard, particularly Germany.
Quantitative Easing (QE) which is essentially pumping money into an economy to stimulate growth, has recently ended in the bloc. Vast sums, at one stage in excess of €80 million a month, was going into the Eurozone, with seemingly little effect. With QE now cut to zero, it will be interesting to see how the Eurozone copes.
Pound to euro rates: lack of Brexit clarity weighs on Sterling
Unfortunately, the lack of clarity surrounding Brexit is still outweighing the Eurozone’s troubles. The next key date on Brexit talks is 26th February, when May is due to put forward her new proposal for Brexit, hopefully with concessions from Brussels. Be aware that Brussels have consistently said there will be no changes to the current deal. So sterling could face further losses in the short term.
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