US Election Shock Prompted GBP EUR Exchange Rate Slump
News that Donald Trump had unexpectedly won the US presidential election dominated market sentiment on Wednesday, offering a strong boost to the Euro (EUR). The relative weakness of the US Dollar shored up the single currency, thanks to the negative correlation of the EUR USD exchange rate. While the initial panic of investors over the prospect of a Trump presidency began to fade over the course of the morning, in part thanks to the less inflammatory nature of the Republican’s acceptance speech, the Euro remained on a stronger footing.
Confidence in the Pound (GBP), meanwhile, diminished in response to disappointing UK trade data. Rather than narrowing in September, as forecast, the trade surplus widened from -11.1 billion to -12.6 billion. This did not inspire much optimism in the outlook of the UK economy, suggesting that Brexit-based uncertainty could have a greater negative impact on the trade gap. As a result the Pound Euro (GBP EUR) exchange rate extended its losses.
GBP EUR Exchange Rate Forecast: Intensified Eurozone Political Risk Predicted to Weigh on Euro
Markets have moved to price in lower odds of a 2016 Federal Reserve interest rate rise as a result of the election, a change that is considered Euro-positive. However, although policy divergence between the Fed and the European Central Bank (ECB) looks to be more limited in the near term speculation continues to favour an imminent extension of the ECB’s quantitative easing program. This prospect could weigh on the single currency, to the benefit of the GBP EUR exchange rate. Political risk may also hamper the Euro, as Derek Halpenny, European Head of GMR at MUFG, noted:
‘We have the Italian constitutional referendum on 4th December, the re-run of the Austrian presidential election on the same day, the Netherlands general election in March and then the French presidential elections in April and May followed by the German elections. There is every chance of some further political shocks in Europe over the coming twelve months to match what has happened in the UK and the US.’
Uncertainty over Brexit is expected to maintain some degree of pressure on the Pound, meanwhile, ahead of the Supreme Court ruling on the Article 50 case. While the government remains confident in pressing ahead with its Brexit plans this could be thrown into disarray if the High Court ruling that parliament must be consulted is upheld. Should rhetoric continue to point towards a hard Brexit, something that appears more likely on the back of Trump’s victory, then the GBP EUR exchange rate looks set to remain biased to the downside.
Current Interbank Exchange Rates
At the time of writing, the Pound Euro (GBP EUR) exchange rate was on a downtrend around 1.12, while the Euro Pound (EUR GBP) pairing was making gains in the region of 0.89.
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