The past eleven months have been undeniably busy, with many economic and political shocks sending waves through the currency markets. EUR GBP exchange rates have seen plenty of volatility, but what do the events of 2016 tell us about what the future holds for the Euro Pound pairing?
EUR GBP 2017 Exchange Rate Forecasts; Could Political Unrest Undermine 2016 Gains?
Despite choppy trading, the EUR GBP exchange rate has made strong advances over the course of 2016. The Euro has advanced nearly 17% against the Pound this year, boosted largely by a lack of US monetary policy tightening and the build-up to – and subsequent fallout from – the UK’s EU membership referendum.
EUR GBP even climbed within ten pence of parity, although the fact the Pound has managed to push the common currency down to 0.85 in the wake of Donald Trump’s US election victory gives an important indicator for 2017 movements.
Political Risks in the Eurozone to Weaken EUR GBP 2017 Exchange Rate Forecasts?
The Pound was considered a safe bet after the US election as markets perceived the downside risks to Sterling to be less severe than those affecting the Euro. Although the Article 50 triggering and ensuing exit negotiations will likely undermine GBP confidence, many investors hold the belief that the worst has already happened to the Pound.
This cannot be said of the Euro, however. Brexit and Trump’s election wins have shown that the political system is vulnerable to huge shock. The rise of populism, anti-migrant and anti-EU sentiment has been well documented across the European Union. Markets are worried that, emboldened by the developments in the US and UK, voters in the EU could elect parties with more extreme, anti-establishment, anti-globalisation agendas. This could threaten the breakup of the entire European Union.
All Eyes on Italian Referendum; Will Renzi Resignation be Next EUR GBP Exchange Rate Shock?
A key bellwether for Eurozone voter sentiment will be the upcoming Italian referendum. Italian Prime Minister Matteo Renzi is trying to make reforms to the Italian upper house, which would make it easier for parliament to push through laws and combat the problems currently facing the nation. However, as was seen with the Brexit referendum and the US election, the vote has become a proxy for general political discontent. Renzi staked his political career on winning the vote, which many agree was a mistake considering the Prime Minister came to power without winning an election.
Should Italian voters use the referendum to cast a protest vote, Renzi’s resignation would open the door to the Five Star Movement, an anti-establishment and anti-Euro party, which could lead to Italy’s withdrawal from not just the Eurozone, but the entire European Union.
The UK’s Brexit referendum has dominated the news and currency market movements over 2016 and this dominance is only going to heighten as Article 50 is triggered and possibility becomes reality. The government is currently appealing a High Court ruling that it must seek Parliamentary approval before invoking the exit clause of the Lisbon Treaty. If the ruling is overturned, EUR GBP exchange rates are likely to surge as investors fear the imminent beginning of the Brexit process. Were the Supreme Court to uphold the initial challenge to the government’s use of Royal Prerogative, however, the Pound may continue its recent uptrend.
Euro Pound Interbank Exchange Rates
At the time of writing, the EUR GBP relative strength indicators (RSI) had dipped below 30, signalling that investors have oversold the Euro in favour of the Pound. It seems as though this trend is flattening off, however, which could hint at a near-term market adjustment.
On the other hand, the long term moving average (MA) continues to trend above the short term MA on a steady downward trajectory. This suggests markets will continue to position themselves short on the Euro, with the common currency having further to fall before returning to an uptrend.
The interbank EUR GBP exchange rate was trending around 0.85 at the time of writing, with the GBP EUR exchange rate trading in the region of 1.17.
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