Thursday, 16 March 2017

Euro gains strength on Dutch election result

GBP/EUR falls after defeat for Geert Wilders


The Euro has gained strength following the Dutch election result, which saw a comfortable victory for the Prime Minister, with the far right candidate Geert Wilders unable to capitalise on an early lead in the polls. This means that there is now little possibility of the Netherlands leaving the EU and has strengthened the Euro as a result, making it more expensive to buy and causing GBP/EUR to fall.

All eyes will now be on the polls in the upcoming French elections. If this result in Holland carries over and Marine Le Pen loses traction and support in France, then the Euro will get even stronger still and pull Pound/Euro rates even lower.

Putting the current Pound/Euro rate into perspective


Many people think that the current GBP/EUR rate is very low, but actually it has been supported by a fundamentally weak single currency, due to concerns over populist voting in Holland and France. If it were not for this it would be much, much lower.

If a win for Le Pen starts to look less and less likely, this weakness in the Euro could evaporate and cause GBP/EUR to fall. If you look at other currency pairs like Pound/Dollar you will see that since the referendum the rate has fallen by around 20%. Pound/Euro on the other hand has only fallen by 12% due to the inherent weakness in the Euro that's keeping it supported.  If GBP/EUR had fallen by the same margin then we would currently be looking at a rate to buy Euros of about €1.04!

With Brexit negotiations due to begin very soon, and the possibility of the Euro bouncing back if the French election polls show Le Pen losing support, you can see that there is a risk of a sharp decline for Pound/Euro rates. If Le Pen wins however and Brexit negotiations are seen as Sterling positive, we could see the rate back at €1.20. There is much going on affecting the currency markets at the moment and I expect a period of heightened volatility in the coming weeks and months.

If you need Euros to buy property in the Eurozone or to pay a supplier then you may be worried about the rate getting much worse. You can mitigate this risk by taking advantage of a 'Forward contract' which lets you fix today's rate for up to 2 years, and only lodging a deposit of 10% to do so. To discuss this in more detail and get a quote on the rate we can offer, contact us today. 

US raises interest rates


Last night the FED raised the US interest rate as expected. It was of no surprise to the markets so we didn't see the Dollar gain any strength. In fact the USD actually weakened slightly, and this was due to Janet Yellen hinting that we may only see 2 further rate rises this year. Market participants had expected 4 hikes this year, and so the more dovish tone actually meant that the USD was sold off, causing it to weaken a little.

Bank of England today


The BoE will announce its decision on interest rates, but if they make any changes from the record 0.25% low I will eat my hat. The press conference and minutes afterwards might provide some insight as to when they may start to push rates higher, but I don't think this event is going to have much of an impact on GBP/EUR rates. Everyone is focused on Brexit and a strengthening Euro and the possibility that Pound/Euro will be heading lower and lower, and it's these political events that will be moving exchange rates in the short to medium term.

** Update ** It turns out one of the BoE's MPC members voted for a rise in interest rates, the other 8 members voted to leave things unchanged. This has given the Pound a 1 cent boost against the Euro as you can see from the live charts here. It's a surprising upside move on the back of just 1 member dissenting, and one that Euro buyers may wish to take advantage of while the higher rate is available.

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