Sterling has made slight gains against the Euro today and could extend this advance as talks in Northern Ireland continue.
Pound Rally Possible on Successful Northern Ireland Agreement
The Pound may be in for near-term volatility against the Euro, when Monday brings an update on the Northern Ireland situation.
Since the start of 2017, Northern Ireland has effectively been without an acting government. This came after relationships collapsed between Sinn Fein and the Democratic Unionist Party (DUP), over issues such as a controversial renewable energy scheme and a lack of liberalism among DUP officials.
For the fourth time, the deadline to reach an agreement with the two parties has been missed. The latest failure to meet the target came on June 29th.
Since then, the deadline has been extended to July 3rd, which may be enough for the two feuding parties to set aside their differences.
If the DUP and Sinn Fein do manage to call a truce and agree to jointly rule by July 3rd then the Pound could rally, as it would indicate stability among key allies of the Conservative party.
If a fifth deadline passes without political success then the Pound may crash, however, as it could mean that Northern Ireland will end up being ruled directly from Westminster.
Such ruling has not happened in a decade and could spark waves of objection across Northern Ireland, weakening Sterling in the process.
Euro could Surge if ECB goes ahead with ‘Hinted’ Interest Rate Hike
The Euro has been volatile on recent European Central Bank (ECB) comments but could rise sharply on future ECB policy decisions
At a conference event in Portugal, ECB President Mario Draghi stated that thanks to ECB policy, deflationary pressures have turned into ‘reflationary’ ones. He also added that;
‘Political winds are becoming tailwinds. There is newfound confidence in the reform process, and newfound support for European cohesion, which could help unleash pent-up demand and investment’.
This raised hopes of policy tightening in the future, although Draghi has stressed that Eurozone economic growth will be needed to keep such a prospect on the horizon.
If trader expectations prove accurate and the ECB does raise interest rates or remove restrictive policy measures then the Euro could surge.
Interest rates have remained at 0% since March 2016, so a long-awaited interest rate hike may prove extremely impactful.
Recent Interbank GBP EUR Exchange Rates
At the time of writing, the Pound to Euro (GBP EUR) exchange rate was trading at 1.1393 and the Euro to Pound (EUR GBP) exchange rate was trading at 008776.
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