Thursday, 1 December 2016

GBP/EUR rises to €1.1940 on softer Brexit hint

Today we have seen the Pound surge higher against the Euro and other currencies, after the Brexit Secretary David Davis hinted that they may consider paying in to the EU budget in order to secure access to the single market. He made the comment in an answer to a question in the house of commons (see below). Despite some poor economic data this morning, Sterling has risen significantly, demonstrating that it's politics rather than fundamentals that is currently driving the Pound. Here's how GBP/EUR has moved over the course of the last month:


What caused the Pound to rise?


This morning the Labour MP Wayne David asked in the commons "Will the government consider making any contribution in any shape or form for access to the single market?"

David Davis replied: "The major criterion here is that we get the best possible access for goods and services to the European market - and if that is included in what you are talking about, then of course we will consider it."

That's it. That statement caused the huge gains seen the charts above. It doesn't really change much and I'm quite surprised that the Pound has risen so much on the back of a handful of words that don't really provide any new information. I think the market has overreacted to this, and I think the rate will come back down pretty soon. Anyway, as you can see, it's a huge rise of almost 10 cents in a month, and the Pound/Euro is now around a 3 month high. The currency markets are unpredictable at the best of times, but in the current climate, even more so.

To put the last months gains in to monetary terms, those looking to purchase a €350,000.00 property in France or Spain, have effectively seen it become £22,000 cheaper over the course of a month, highlighting how quickly exchange rates can change.

Will the Pound continue going higher?


It is of course impossible to predict exchange rates, however such a large price adjustment is likely to be unsustainable. Just one comment from an MP has sent the Pound surging to 3 month highs vs the Euro, and another comment from government could send things back down into the €1.16's again where rates were yesterday. If you need to buy Euros, it's certainly worth considering getting a rate fixed while it is so high. It may go higher still of course, but equally it could very quickly drop back away at any moment. If the Italian referendum is a 'Yes' on Sunday, then the Euro could regain strength and pull rates back down.

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