The Eurozone has a lot to deal with in the coming months that does have the potential to cause the value of the euro to fall. What factors are impacting the euro rate forecast at present?
Germany’s constitutional court ruling has ruled the European Central Bank’s (ECB’s) quantitative easing (QE) programme between 2015-2018 was illegal. QE is essentially pumping money into an economy to stimulate growth. As the engine room of the bloc, they are reluctant to take on collective debt for other struggling members of the EU. The illegal approval of QE certainly does not sit well with the Germans and there is now the more pressing issue of agreeing on a rescue package to fight back against the economic damage caused by the pandemic.
It is currently causing huge divides within the bloc due to how much funding will be put forward and how it will be distributed. There are reasons to question how the funds are due to be split with Poland set to get a bigger piece of the pie than Italy. This is despite Italy being far worse hit by COVID-19 than Poland. This kind of situation does not bode well for the Eurozone moving forward, with many member states at odds with decisions made in Brussels.
Brussels also have to plan a difficult seven-year budget shortly. This will have to predict the economic fallout from the pandemic and how to combat against it without entering a situation where the debt will be impossible to pay off. This will have to be done of course without any financial input from the UK.
There is also the small matter of Brexit to contend with. Boris Johnson has now made it clear there will be no extension to Brexit negotiations which has caused sterling to weaken against the euro. This is a bold move from the PM considering there are still two key issues to overcome with both sides not willing to budge, Fisheries and the Irish border.
Boris may believe the time constraint will be ammunition in order to get a deal over the line, but let us not forget when Teresa May was in power. Many considered her stance on talks to be weak and that lacked what it takes to get a deal over the line, but now it seems Boris is having the same problems May encountered during her attempt to get a deal together.
Could it be that Michele Barnier has a mandate that he intends to stick to, and Johnson and Frost are simply banging their heads against a brick wall?
In current circumstances it looks as though the UK is heading towards a no deal which is being factored into current exchange rates, with GBP/EUR hitting a three-month low yesterday of 1.0901.
The pound is not the destination of choice in time of global economic uncertainty anyway due to the huge imbalance between imports and exports, but when you add Brexit into the equation its attractiveness falls even further.
There is certainly potential for further gains for the euro in current circumstances.
If you are selling euros to by sterling you could be forgiven for hanging on for further gains despite the very favourable rates we are currently witnessing.
German Unemployment Data
Tomorrow we will see the release of German unemployment data, and this does have the potential to influence euro value. If we do see a significant rise above expectations, we could see euro weakness so keep a close eye on this announcement if you have a pending trade.
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