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November 2018
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August 2018 GBPEUR Currency Forecast

by Jonathan Watson

GBPEUR looks like it could remain, once again in the trading parameters we are now becoming very familiar with. This is all essentially down to the lack of any significant news to push exchange rates outside of the interbank levels of 1.11-1.15 we have become very accustomed to in 2018.

Whilst GBPEUR rates have been under pressure once again from Brexit as fresh uncertainties put pressure on the pound, the news Theresa May will be taking over personally in the Brexit talks has helped the pound to bounce back slightly as we finish July.

Theresa May’s Chequers plan failed to unite the party and the resignations of key members of government including Boris Johnson and David Davis did see sterling lower. With MP’s on the summer recess the absence of any fresh negative Brexit news had seen sterling bounce slightly higher, buoyed also by the prospect of the Bank of England raising interest rates.

However, with Brexit uncertainties hanging over the pound and all manner of potential outcomes including another Referendum, a Hard Brexit and a snap election, to name a few, GBPEUR may remain on this lower side throughout August.

More of the same on GBPEUR?

Central bank actions will be in focus in August, in particular the Bank of England meeting on the 2ndAugust. The market is still pricing a hike in and any serious positivity here could send sterling back towards the 1.14-1.15 interbank levels.

What to me, appears more likely is a ‘dovish’ hike, which means it would be soft in tone and probably accompanied by cautious commentary as to the extent of any future hikes. This would echo the last hike in November 2017 where sterling fell despite the hike, because of the dovish comments.

The recent European Central Bank (ECB) meeting has seen the Euro struggle under pressure from policy makers in the Eurozone to match their desire to raise interest rates, versus the concerns over whether the Eurozone economy is actually ready for this.

The current uncertainty over whether or not the ECB will act could also see the single currency softer, counteracting any weakness by the pound. Concerns over the Eurozone being dragged further into Trade Wars could also put pressure on the single currency as markets are concerned at the potential negative impact on the ECB in raising interest rates.

However, Donald Trump did meet with Jean-Claude Juncker which resulted in an agreement to reduce any trade barriers. This did initially see the Euro strengthen but could be an issue down the line for the Euro in August.

Conclusion

It is probable that GBPEUR will remain in the familiar interbank ranges between 1.11-1.14 as markets await something substantial on Brexit to push outside of these levels. Economic data should keep some volatile trading patterns within this range, it does appear the pound will remain on the weaker side and clients with a Euro buying requirement might find a more defensive position is sensible to protect from any losses.

Jonathan Watson | Associate Director | Foreign Currency Direct

Email: jmw@currencies.co.uk | Web: www.currencies.co.uk
Telephone: +44 (0)1494 725353 | Freephone: 0800 328 5884

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