The GBP/EUR exchange rate seems to have settled at just over 1.12 for the moment. This follows a roller-coaster ride which saw the currency pair trading in the 1.09s a week ago.
The Pound looks like it has found support above 1.10 which is likely to be the result of positive UK inflation data announced earlier this week. The UK inflation data was seen as a positive sign for the economy, with the 1% result putting the Bank of England (BoE) on track to meet the 2% target.
The potential for further Sterling strength against the Euro will be heavily dependent on upcoming data, news on Article 50 and any Brexit negotiations. There is always potential for Euro weakness, although the European Central Bank (ECB) held interest rates at 0% yesterday, and announced no change to their monetary policy. If the decision is made to extend the Eurozone Quantitative Easing (QE) program past March 2017 at the next scheduled ECB meeting Euro weakness could be the result.
The next major event that could impact GBP/EUR exchange rates is the BoE’s UK interest rate decision, due in November. With many predicting that rates will be cut to 0%, resulting in Pound Sterling weakness, it’s not surprising that some of the banks are forecasting more doom and gloom for the Pound.
Earlier in October HSBC forecast that GBP/EUR could reach parity in 2017, and Credit Suisse analysts have suggested that the pair could be trading in the 1.06s within three months. If that is the case it will be an extraordinary drop from the highs of over 1.40 ten months ago.
I agree with the masses, that we could continue to see further Sterling losses until there is some clarity in the UK’s negotiations with the EU over the proposed exit. With Article 50 not being declared until March 2017, the uncertainty is expected to continue in the months ahead.