GBP EUR Strength – Will Rates Hit 1.15?

The pound has rallied against the Euro taking rates for GBP EUR to a high of 1.1451 today. The pound has actually seen a poor day against all of the major currencies the exception being the Euro. The pound has been supported against the Euro after positive employment and average earnings data performed well. Unemployment remains at 4.2% which sits at a 42 year low whilst average earnings overtook inflation, something the Bank of England has been very keen to see happen.

After the bank of England held interest rates last Thursday the markets are beginning to question when the next interest rate increase will happen. The expectation is for a rate increase in August by 0.25% taking levels to 0.75%. If all goes well with a Brexit and a free trade deal is in place then this should allow the Bank of England to hike again by another 0.25%. A move towards 1.15 is not unrealistic although there are some Brexit headwinds approaching which could see the pound fall.

Clients look to buy Euros could see some better opportunities if the economic data in the UK improves and there is an increase in Quarter 2 GDP. Strong data in my view will settle those fears that the slowdown is more deep rooted than just the Beast from the East cold weather front and could help lift the pound considerably.

In the short term though the markets are more interested in the more pressing issues of the Brexit negotiations and the hugely important vote in the House of Commons in the next few weeks.

The House of Lords have made a series of amendments that will attempt to keep Britain in the EU single market and customs union. If the government were to lose the vote there could be a series of political events that follow including the prospect of a new prime Minister and / or a general election. In my view this poses the biggest risk for the pound in what is already a very uncertain period. A change of government could put the pound on very shaky ground and clients with pending requirements would be wise to consider planning ahead of the key vote. There is likely to be a lot of market volatility at that time.

For more information on sterling or Euro exchange rates and assistance in making transfers at the best rates of exchange then please get in touch with me at jll@currencies.co.uk

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