Pound/Euro rates have soared today as a result of the US election result. This morning the rate was down at €1.11, and at the time of writing it's up to €1.14 which is back to where it was before the flash crash.
It's partly due to Euro weakness, but actually what's happened is the opposite of what the market had expected. Logic held that if Trump won, the Dollar would weaken and the Euro would strengthen, pulling GBP/EUR lower. This is what we initially saw overnight, but that trend has been reversed, and the Pound has risen by 3 cents against the Euro. My view is that the markets are starting to realise the Pound has been kept unfairly subdued, and perhaps coming to the realisation that the EU economy is in a dire state.
Why have GBP/EUR rates gone up?
It's a combination of the Pound getting stronger, and the Euro getting weaker. For some time, it's been politics driving exchange rates with markets pretty much ignoring the economic fundamentals. When you actually think about it though, there was no reason for Sterling to be weak. The economy is resilient in the wake of the Brexit vote, and economic figures are very good. The EU economy, as I explained in a post last month, in contrast is performing very poorly. We also have an Italian referendum coming up, elections in France and Germany next year, and perhaps the market now realises that without the worlds 5th largest economy to help support it, the EU is starting to look like a very vulnerable place.
Will the rally last? It's impossible to forecast these things of course, but large gains like this usually prove to be short lived. If you need to buy Euros, then consider getting in touch to place a 'Stop Loss' order. This works by securing your currency if the rate falls below a pre-agreed level, which protects you against adverse rate movements while still allowing you to take advantage of gains if the rate keeps going up. Click here to discuss your requirements and get a free quote, or complete the form below.
Labels: Brexit good for Britain, EU economy poor, Strong Pound, UK economy good, US Election, Why has Pound gone up