GBP EUR Rates – Brexit and Italian Political Uncertainty (James Lovick)

The pound has moved higher against the Euro creating a good opportunity for those clients looking to buy Euros. Rates for GBP EUR almost broke through the 1.15 target for many before slipping back to 1.1450. There is currently a huge amount of volatility for the Euro on the back of the political uncertainty in Italy following the recent election.

There is now the prospect of frees elections in Italy after the Italian President failed to appoint Paolo Savona as finance minister who was backed by both leaders of the League and Five Star parties. Mr Savona is well known for being Eurosceptic and the blocking of his appointment is likely to result in further Euroscepticism.

When it comes to a vote in Parliament both leaders have stated they will reject the President’s decision to try and appoint his own choice of finance minister who used to be an official in the IMF. They are also seeking to impeach the president for his choice of actions. Clients looking to buy Euros are likely to see a very volatile period in these coming days and weeks with the global media focussing on developments. Planned marches and protests are expected on the 2nd June which could demonstrate the extent of bad feeling in Italy about this.

Clients looking to buy Euros with pounds are also likely to see a volatile period for sterling exchange rates. There is an expected vote in the House of Commons in these coming weeks which could make history and create a new direction in the Brexit negotiations and hence the pound. If the government is defeated in the House of Commons over a series of amendments proposed by the House of Lords then this could slow the Brexit process down or change its course which would likely see high volatility in the pound.

A fresh general election which would be likely in this scenario in my view would see sterling fall sharply.  If however Theresa May is able to win these votes then the government would look much stronger and this could help see the pound rally. This really could be a hugely volatile period ahead and clients either buying or selling Euros should plan ahead of this major event.

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