Monday, 22 May 2017

Why has the Pound fallen against the Euro?

It's not been a good start to the week for Pound/Euro rates, with the pair now trading in the €1.15's, 3% lower than it was just a few weeks ago:


Why has the Pound fallen against the Euro?


There are 2 reasons for the drop in the rate. The first reason is the UK general election. Polls over the weekend indicated that Theresa May's lead has halved to just 9 points, following their manifesto that has not gone down well due to the scrapping of free school meals and proposals to reduce state support for the elderly.

What the polls show is that nothing is certain, and if her lead can be halved in just a few days, who knows what could happen in the next few weeks. The prospect of Corbyn becoming Prime Minister and leading Brexit negotiations has not been welcomed by the market, and that's the reason for the drop in the value of the Pound.

The other reason is due to the Euro gaining strength and becoming more expensive to purchase. German Chancellor Angela Merkel blamed a weak Euro on the large German trade surplus, and markets took this as a sign that the European Central Bank may need to curb their stimulus programme and start to raise interest rates soon. This strengthened the Euro and compounded the fall in GBP, pushing GBP/EUR exchange rates into the €1.15's.

Where next for Pound/Euro rates?


We've been saying for some time that it was likely rates would start dropping, and we continue to believe this will be the case. If the Conservatives do win a huge majority, or polls indicate that they will, then we may see Sterling bounce back and recover some of its recent losses. After the election on June 8th however, focus will switch to the Brexit negotiations, and they have the potential so send the Pound lower still, until it's clear what kind of deal we will get with the EU moving forwards.

In the shorter term, there are various releases this week that have the potential to affect the Pound, including a UK Inflation report on Tuesday, a speech by ECB president Mario Draghi on Wednesday, and the latest UK GDP figures on Thursday.

If you need to make a currency transfer and would like to find out what effect these releases may have on exchange rates, make a free enquiry with us today. We can also offer you a free quote to see what rate we can offer. Even if you already use a currency broker, it's likely we can offer you a better rate and on large transfers we could save you thousands.