It’s been a busy month for the currency markets, with Sterling and the US Dollar on a rollercoaster ride
Brexit is the big bear that won’t budge
There’s no getting away from it: the key catalyst in any exchange rate movements between the GBPEUR currency pair is Brexit. Positive or negative rhetoric, discussions and decisions as the UK-EU negotiations play out are carving a path for these currency partners, strengthening and weakening Sterling in equal measure.
Turbulent times for the Euro
The Euro makes up one side of some 34% of FX swap transactions, so, while this pales in comparison to the US Dollar’s 91%, it still makes up a considerable share of the currency markets, and economic performance and political activity in the Eurozone not only affect the strength of the Euro, but can have noticeable effects on other currencies.
Besides Brexit, the European Central Bank’s (ECB) approach to monetary policy is often a market mover – the current cautious attitude is, for the most part, keeping the Euro on the back foot.
Political uncertainty continues for Eurozone
The aftermath of the German and Italian elections are also still a concern for the Eurozone and the Euro, and recent economic disappointments from Germany – their major producer – have kept the Euro under pressure.
The Eurozone is still in recovery mode, with a mixed bag of economic data being released and markets considering further troubles for the Euro in the weeks ahead, given the myriad political pressures. Strong economic data coming through is helping boost the Euro on occasion, as we have seen just recently, but the overall cautious stance of global currency markets is reflected in the single currency’s performance.
British Pound still tied to Brexit – will April see it strengthen?
The Pound has remained cool under pressure in the current market, having dipped against the US Dollar and then climbed its way back up again. Sterling strength to date has been all down to any positive Brexit developments, and the Pound remains vulnerable to any shocks from difficult conversations and negative murmurs that filter from the negotiations.
Success for Sterling
Recent weeks have seen strength and success for Sterling, however, as confirmation of a Brexit transition agreement and a more proactive stance from the Bank of England (BoE) on interest rates have helped the British currency to climb against a raft of major currencies, including the Euro, US Dollar and Australian Dollar. Markets have been buoyed by this vote of confidence for the UK economy and the Pound has benefitted. Positive economic data, in the revision of Gross Domestic Product growth upwards to 1.8%, is also helping balance the Pound against its major currency partners.
Will the Pound push upwards?
Markets are debating whether the traditional upswing for the Pound will happen again this April; something we’ve traditionally seen at the start of springtime in the UK. The Pound often pushes up in April, and it seems to happen regardless of the economic and political context. However, could Brexit be big enough to tether the Pound on its travels next month?
Currency markets remain cautious
Markets are in a cautious mood, with several key economic and political discussions and announcements still on the cards and trade tensions globally, all alongside the waiting game for confirmation of the Brexit transition deal and further negotiations playing out.
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