Tuesday, 14 March 2017

Pound/Euro forecast: Article 50

GBP/EUR rates have steadied somewhat today, after falling briefly into the €1.13's first thing this morning. The Government have now won the right to trigger article 50 and start negotiations with the EU, however this may not happen as soon as thought.

It will happen this month, but with Dutch elections tomorrow and a European Union meeting later this month, the timing will be key.

The EU meeting is to celebrate the 60th anniversary of the signing of the Treaty of Rome, which led to the establishment of the European Economic Community (EEC) on 1 January 1958. Theresa May will want to get negotiations off to a good start, and clashing with this would not be a good way to do so. Therefore it's likely in my view that it will come at the end of the month. When it does come, then many analysts are predicting the Pound will fall further as a result.

IndyRef 2


In other developments, the Pound has been kept under pressure by news of Nicola Sturgeon's demand for a second Scottish Independence referendum before the UK leaves the EU. Those that were following exchange rates during the last Scottish vote in 2014 will remember that it kept the Pound from rising due to the uncertainty, much as we saw during the general election. Even more political uncertainty for the UK is only going to push Sterling lower.

Dutch Elections tomorrow


That's a few years away though. In the here and now, tomorrow's Dutch vote will be a key for the short term GBP/EUR rate. With the diplomatic row between Holland and Turkey possibly giving support to nationalist parties, a win for Gert Wilders could weaken the Euro and provide a short term spike for Pound/Euro rates.

US Interest Rate rise to strengthen USD?


Also tomorrow, the USA will announce whether they will raise interest rates. I think they will raise rates and the market is probably already pricing this into GBP/USD rates. What will be key is any clues on how many more rate rises we can expect this year; if they are hawkish in their statement indicating that more rates rises are on the way, expect the Dollar to strengthen. I think it's only a matter of time before we see this pair drop below $1.20.

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