Possibility of GBP/EUR Parity in 2018 but Analysts Suggest Chances are Slim
After a turbulent year The Pound Euro (GBP EUR) exchange rate looks set to end 2017 lower for a second consecutive year, but could this push the pairing to parity in 2018?
Sterling’s (GBP) to Shake of Some Brexit Anxiety in 2018?
Brexit remained a key focal point for GBP investors this year and was a source of much of the Pound’s volatility as the UK government finally got negotiations underway.
However the view among economists is that Brexit uncertainty is beginning to abate and that GBP/EUR is being given some breathing room, something which can be seen it the pairing’s 6% rally from its worse levels during the summer.
In fact some analysts are even going so far as to suggest that the majority of Brexit related risks have already been priced into Sterling by markets, possibly allowing the currency to be moved by more traditional factors and economic data.
Marianna Georgakopoulou, head of asset allocation at Ashburton said;
‘It is very possible that we will see at certain times Brexit drivers taking a back seat and fundamentals driving the currency.’
However at the same time the start of the second stage of Brexit talks in which the UK will negotiate its future relationship with the EU could usher in a significant amount of uncertainty amongst investors.
Should Theresa May struggle in trade negotiations then Sterling sentiment could plummet once again, something which could put GBP/EUR parity on the table once again.
Euro (EUR) to be Undermined by Dovish ECB?
While the Pound suffered in 2017 the Euro had quite a stellar time of it this year, with EUR on track to be one of the best performing currencies for the year in the wake of an impressive recovery in the Eurozone economy.
However there is one factor has dragged on the Euro throughout the year and looks set to do similar in 2018 and that would be the European Central Bank’s (ECB) dovish approach to monetary policy.
Markets have become increasingly frustrated by the Bank’s accommodative policies, with some critics suggesting that the Eurozone’s performance this year warrants some monetary tightening.
But as inflation in the Eurozone remains well below the ECB’s target rate of 2% and is forecast to remain so until at least 2020 it looks extremely unlikely that the Bank will choose to raise interest rates in the coming year.
GBP/EUR Forecast: Politics to Dominate Pairing in 2018?
Looking to the year ahead the GBP/EUR exchange rate is likely to find its movement in early 2018 dominates by politics once again, with Theresa May’s increasingly unstable position possibly leading to a change at the top of UK politics in the coming months.
Meanwhile the Euro will have to contend with the outcome of a general election in Italy and German coalition talks as the Eurozone’s largest economy remains without a proper government since September.
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