Further strength for Pound to Euro exchange rates?
Sterling exchange rates continue their rally this week, and have opportunities to extend further as circumstances surrounding Brexit begin to change. The Court ruling which now opens up the Brexit debate amongst Parliament allows for proper scrutiny, taking much of the responsibility away from Theresa May and her new Tory Government.
With Parliament now able to block Article 50 unless Theresa May releases a complete plan for the UK investors now have added confidence that any deal will benefit the UK.
That being said, a Court appeal is expected in December which could see Theresa May overrule any plans, allowing her to Trigger Article 50 ahead of her March promise. But in yet another twist of events further delays could emerge if the Court decide a comprehensive re-write of the European Communities Act 1972 is required before the UK can prepare its departure.
This may be viewed as a negative for Leave supporters but a delay to Brexit could be positive for the Pound, with a number of Worldly events next year, including the European elections, the Pound could find itself edging closer to 1.20 possibly higher against the Euro in 2017.
There are of course, other factors at play that could benefit the Pound and the UK. Donald Trump’s support for post-Brexit Britain could provide some comfort in regards to trade deals, and given the issue of stagnant inflation in the Eurozone, Mario Draghi of the ECB may have no choice but to continue with Quantitative Easing.
But this cocktail of Pound strength/Euro weakness and Trump’s anti-establishment rhetoric may not sit well with other European states, especially considering that the European elections are fast approaching.
Another point of contention focuses on the FED’s optimism for a rate hike in December, investors continue to pump money into the US Dollar which has only added to the Euro weakness witnessed this week.
If the Pound can maintain its current levels and continue to outperform expectations this could bode well for consumer prices. The headlines have been littered with warnings regarding a cheap Pound and this recent rally has put the Pound back on equal footing. Given that the 10-year average for GBP/EUR is 1.20, current levels are far more appealing than their recent lows of 1.10 witnessed back in October, and with retail sale’s figures once again defying market expectations, there are more reasons to be optimistic for Pound Sterling exchange rates.
I’m therefore predicting exchange rates between 1.165 and 1.175 next week.
Current exchange rates
At the time of writing, the Pound to Euro exchange rate (GBP/EUR) was 1.16 and the Euro to Pound exchange rate (EUR/GBP) was trending at 0.86. See below details for other currency pairs.
- GBP/USD – 1.23
- GBP/AUD – 1.68
- GBP/CAD – 1.67