Euro continues strong start to the year
Yesterday we saw the Euro close at its highest level versus the Pound in 13 months whilst also setting a new 2016 high of 0.7787. The Euro has traditionally been preferred in times of financial uncertainly and current signs suggest no change to this pattern with the Euro gaining more than 5 percent verses the Pound this year alone. Euro bulls will also have been buoyed by ECB executive board member Benoit Coeure stating on Monday that “The Eurozone is not part of the problem,” when referring to current weakness and uncertainty in global markets, and that there are no bubbles within the Eurozone economy with emerging markets, China and the US economies creating anxiety within global markets.
Euro to continue bullish trend?
As well as the single currency being considered a safe haven during market turmoil as we’ve seen recently, the Euro has also been boosted off the back of Pound Sterling weakness. ‘Brexit’ fears coupled with an unlikely interest rate hike this year have weighed on the value of Sterling which has contributed to the strength of the Euro in recent months.
In the short term I believe that the Euro will continue its bullish run versus the Pound predominantly due to the uncertainty surrounding the UK’s continued membership within the EU, also any signs of weakness in the UK’s banking and financial sector will heighten Sterling’s weakness due to the UK’s reliance on financial services to boost its economy. From a longer term perspective I believe we could see return to the long term upward trend in Sterling’s value versus the Euro due to reduced political uncertainty surrounding the UK once we know the outcome of the referendum, although should the UK opt for a ‘Brexit’ I expect further falls in Sterling medium term assisted by Bank Of England intervention in order to increase exports by making the Pound more attractive to overseas buyers.