Is there justification for sterling to rally?

Pound to euro rate falls prior to the European elections

GBP/EUR – I am afraid I don’t think there is much reason to be positive in regards to GBP/EUR exchange rates. Brexit is continuing to anchor the pound. The current situation does not bode well either. Teresa May has currently delayed a vote on her Brexit deal knowing that it would not go through in it’s present form. She hopes to negotiate new terms with Brussels but has been stone walled. Jean Claude-Junker, President of the European Commission has stated there will be no concessions made, they are only willing to clarify terms from the current deal.

If it is the case that Brussels are not willing to negotiate, May is in a very difficult position. The current deal will no doubt not go through Parliament and we could be headed for a no deal. May could well resign if her current deal does not go through or Corbyn could mount a leadership challenge. It is important to note that Brussels have stated they will not renegotiate no matter who is in power.

If May were to be ousted or if she were to resign the you would expect the pound to suffer due to further uncertainty being added to the equation, however this could mean a second referendum becomes more probable. A second referendum could be deemed as positive for sterling as poles suggest the result would go in favour of remaining in the EU.

A no deal scenario could hurt the pound significantly. I respect Mark Carney, but I do not agree with his fear mongering. GBP/EUR dropping below parity is overly pessimistic. 1.06-1.07 is more realistic.

Due to the current situation I am afraid if you have to sell sterling short to medium term it may be wise to take advantage of current levels. There were concerns over the Italian budget, but Brussels and Rome have now settled on a figure which seems to have restored some investor confidence. In this game it is important to have basis as to why a currency will rally rather than relying on a hunch or simply not being prepared to accept trading at current levels. I am afraid in the current situation I don’t feel that there is much justification for the pound to rally against the euro.

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