Sterling vs euro exchange rates have fallen away in recent weeks due to poor economic data being released from the UK and positive news about the Eurozone growth and their quantitative easing program.
The Bank of England a week ago announced that they believe inflation will continue to rise whilst wage growth would fall. This announcement was also supported by the inflation numbers this week, and this weeks inflation hearing for the UK Tuesday morning is a release to keep a close eye on as I expect the Governor of the Bank of England to remain dovish and therefore further falls could occur.
As for the Euro President of the European Central Bank Mario Draghi last week gave an interesting statement followed by a Q&A session. His main points where that eurozone unemployment has fallen to its lowest level since the crisis began, growth is improving and the recovery is broad and solid. This provided a boost for the Euro however when asked about the Q.E program he gave no indication to when he will taper the program from €60bn.
Looking further ahead the UK General Election is now in full swing as all of the leading parties have released their manifestos. After reading the manifestos I have to agree with the recent polls and believe that the Conservatives will win a majority. Therefore this could could a small spike in the pounds value however past history tells us leading up to an election the currency in question will come under pressure therefore will the pound only recover the losses we see in the next three weeks?
Thereafter Brexit negotiations I believe will be the main talking point for months to come starting with how much the UK will have to pay for the ‘divorce settlement’. Bank of America Merrill Lynch Global Research have exclaimed Brexit negotiations will provide major swings on the market and therefore opportunity. However they feel that sterling’s good run is coming to an end exchange rates could take a tumble. For me I think it is impossible to predict how Brexit negotiations will unravel. Quite simply if negotiations fall at the first hurdle you would expect a major fall for GBPEUR exchange rates where as if negotiations go well GBPEUR could rise.
In regards to the eurozone clients need to keep their eyes on Mario Draghi and any hint to when he will cut the Q.E program. With inflation continuing to rise and pressure from the leading nations like Germany I wouldn’t be surprised to see this happen sooner rather than later.
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