Following the results of the Dutch elections yesterday, Euro investors can now breath a sigh of relief knowing the anti-EU sentiment appears to be residing. For now, but with the French elections fast approaching, nerves may resurface knowing that Marine Le Pen still has a firm grip on the polls.
EUR/USD exchange rates have peaked at a 6 week high, sitting firmly at 1.073 with similar trends noted for EUR/GBP.
Stronger economic performance
With fears residing on political certainty, markets have now moved to the string of economic data released this morning which came in as expected. Consumer price data posted moderate gains at 0.9% YOY for the month of February, with inflation showing signs of picking up in the economy.
With it being a quiet week for Eurozone data next week, much of the movements for GBP/EUR will centre around Article 50 and the formal process of the UK’s withdrawal from the European Union.
Brexit uncertainty benefitting EUR/GBP
The Euro has an opportunity to make further gains against Sterling, on the assumption that the UK will enter negotiations with the EU on a weaker footing.
The biggest concern for market now sits with the prospect of a “no deal” for Britain, potentially putting the UK in a position to default to WTO tariffs. Brexit secretary David Davis has confirmed that the Government have not adequately factored in the risks of a “no deal” option.
In my view GBP/EUR will fall back to the lows of last October and November, when rates hit yearly lows upon Theresa May’s Article 50 announcement.