Tuesday, 1 March 2016

GBP/EUR rates recover as Euro weakens

The last few months have not been kind to Sterling, and last week the Pound was at 7 year lows against most currencies, due to the fears of a 'Brexit' which I've explained in recent posts. We have seen a slight recovery in the last few days, however yet another major bank has warned the Pound could drop to parity against the Euro....

We saw the Pound recover slightly yesterday and there were 2 reasons for this spike upwards. Firstly, due to month end capital flows, investors gave Sterling some breathing space after the sustained selling we've seen in recent weeks. Also, EU inflation came in as negative yesterday, which has weakened the Euro and made it a little cheaper to buy.

Next week I'm expecting that the European Central Bank will announce further monetary stimulus for the Eurozone, and this is even more likely now that yesterday's figures showed that inflation is so low. If they do announce further monetary easing, or hint that they will do so soon, then I would expect the Euro to weaken further, however I don't think we will see GBP/EUR shoot back up.

The fears of a 'Brexit' are going to dominate the movements for Sterling exchange rates for several months to come, and I think that any Euro weakness will be tempered by persistent weakness in Sterling. Indeed yet another major bank yesterday joined HSBC and Goldman Sachs in warning of severe risks to Sterling. UBS said that Pound/Euro may fall to parity if the UK vote to leave, meaning that 1 Pound would only buy 1 Euro. Food for thought if you have a Euro requirement in the next 6 months.

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