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Will Pound to Euro Gains Persist Once Brexit Negotiations Begin?

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The Pound rallied by an unexpected 0.6% against the Euro today, but Sterling’s gains may be based on borrowed time as the Article 50 trigger approaches.

For context, Sterling recently weakened when the Queen gave royal assent to the Article 50 bill.

With the last hurdle to Brexit now out of the way, Article 50 has taken the spotlight as the next major source of Sterling movement.

The official declaration of intent for the UK to leave the EU is expected to be made on the last week of March, between the 27th and 31st.

After this, Brexit procedures are likely to be lengthy and convoluted. If the Pound is to appreciate during the negotiations, then early signs that the UK and EU will part amenably are needed.

Just how viable this outcome is remains to be seen; on one side, Brexit Secretary David Davis has stressed that colleagues’ remarks on Brexit should be ‘as calm as possible and as amicable as possible’.

On the other, however, Theresa May has insisted that at the end of Brexit negotiations;

‘No deal is better than a bad deal’.

This raises the alarming prospect of a ‘Hard Brexit’ taking place, which could cause a sharp a prolonged devaluation for the Pound.

Having just seen off the Dutch election with a favourable outcome, the Euro is next set to be influenced by the more high-impact French election.

Coming in late April and early May, the French presidential election is more likely to damage the Euro if Eurosceptic parties take power.

The main threat is from the Front National, headed by Marine Le Pen. As well as representing right-wing attitudes, Le Pen’s Euroscepticism raises the risks of Eurozone and EU fragmentation if she takes power.

Former Prime Minister Francois Fillon was previously considered the best shot to defeat Le Pen in the election, but a scandal about Fillon paying family members for non-existent work has severely shaken his popularity and chances of victory.

If Le Pen drops out of the first round of voting, the Euro is likely to advance next month, while converse signs that she will claim the Presidency could rattle Euro traders and trigger a EUR GBP depreciation.

Recent GBP EUR Interbank Exchange Rates

At the time of writing, the Pound to Euro (GBP EUR) exchange rate was trading at 1.15 and the Euro to Pound (EUR GBP) exchange rate was trading at 0.86.