As always Brexit negotiations continue to drive GBPEUR exchange rates and at present GBPEUR has reached a key support level. Over the last 8 weeks every time GBPEUR has reached 1.12 we have seen the pound strengthen against the euro? The question is will this trend continue this month?
Negotiations are on going and UK Prime Minister Theresa May is asking for a bespoke trade deal with the EU, however Michel Barnier keeps reiterating that a bespoke trade deal is another phrase for cherry picking. If the transitional deal is reached this month and trade talks start early next, I expect the pound will make gains against the euro and reach the highs we were experiencing earlier in the year.
Politics in Europe are also having an impact on GPBEUR exchange rates. The good news for the Euros is that Angela Merkal has secured her position as Chancellor of Germany. However with a hung parliament in Italy at the moment and far right party 5-Star receiving the most amount of votes, people in Italy are questioning whether they should have a referendum like the UK. This story has the potential to have a considerable impact on euro exchange rates, nevertheless with 5 Star stating they will not work with any other party, it looks like a coalition could be formed by Northern League and Forza Italia.
This week the key data releases to look out for is the ECB’s interest rate decision Thursday afternoon. Interest rates are set to remain on hold, however any hint to the tapering of the quantitative easing program could strengthen the euro. The ECB have showed concern recently that the euro is overvalued due to the devaluation of the US dollar. Therefore I expect the statement by President Mario Draghi to not give to much away and therefore the euro to remain buoyant and against the pound.
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