After a disappointed end of the year for the Eurozone, a glimpse of hope for the single currency has emerged off the back of some rather impressive economic data this week. EUR/USD fell as low as 1.03 in December, due in most part to the Italian Referendum result and the consecutive crisis that followed.
The Euro also struggled against the Pound prior to Christmas, and in spite of Brexit GBP/EUR edged closer to 1.20 as concerns mounted across Europe ahead of the elections this year. The tides do appear to be turning this side of January, but will the momentum continue?
Pound remains risky to Brexit uncertainty
The UK economy is outperforming expectations but the uncertainty it brings is damping appetite for the Pound. Theresa May is set to release her Brexit strategy next week and markets are concerned that a hard Brexit may follow. Immigration is top of the Government’s list and remaining in the single market will not be an option if Theresa May plans to curb migrants.
There are talks of a transitional Brexit which could have a positive impact on the Pound, but much of this is speculation and nothing concrete has been arranged or discussed between the UK and remaining EU members.
Further Brexit challenges could arise from the Supreme Court hearing, as it remains unclear as to whether the UK will retain EEA membership under Article 127 of the Lisbon treaty. It’s clear that Pound to Euro exchange rates will remain choppy throughout January and into February. However the real test for the UK comes in March when Theresa May is set to invoke Article 50. This gives the Euro plenty of opportunities to may headway against the Pound.
Trump to take White House next week
The rally following Trump’s victory appears to be diminishing, following the recent events that allegedly link Trump to the Kremlin’s, his childish rants on social media are already having a dampening affect on the US Dollar.
But the prospect of 3 further rate hikes this year is keeping investors on their toes, and could outweigh any positive movements from the Eurozone. Furthermore Trump’s pro-business stance could even push inflation higher which in turn may require further action from the FED.
For now the Euro could make further headway against the Pound and US Dollar, but the elections in France and Germany could present Euro weakness in the months ahead.