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EUR/GBP at 3-Month Low; EUR/USD Much Higher Next Year

The Brexit-driven EUR/GBP exchange rate opened on Monday at a 3 ½-month low as investors continue to bet on the UK and EU striking a deal. Against the dollar, the euro will be worth as much as 13 percent more next year, according to a new forecast from ING.

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With eurozone monetary policy somewhat dull since the ECB signalled in June it would leave interest rates unchanged until the latter stages of next year, Brexit, Italian politics and, to some extent, a Turkish lira currency crisis, have been the drivers of euro exchange rates in recent months.

Although by no means the hardest hit major currency in recent weeks, it is fair to say that the euro has disappointed of late, having fallen in seven of the past nine trading days against the dollar and in nine of the past eleven relative to the pound. The euro traded back below 1.15 dollars on Monday and at a 3 ½-month low of 0.878 pounds.

On the dollar side, the aforementioned euro weakness is the result of a surge in US yields, and versus the pound, the result of a market-wide bet on a Brexit deal being struck by Britain and the EU. Of the two Brexit affected currencies, it has always been the pound, not the euro, that has been sold off whenever the possibility of “no deal” has been raised; it is the pound, therefore, that has the best of it whenever this possibility is reversed.

The euro is heading significantly higher though, write ING’s Viraj Patel and Petr Krpata. The pair retain a “constructive” euro outlook and have their eyes on 1.25-1.30 dollars next year—between 9 and 13 percent higher than current levels.

“The euro should receive a boost from the second step of [ECB] policy normalisation—the deposit rate hikes. But although that’s a story for 3Q19 . . . we expect markets to front-run the event and start pricing that in six months ahead. ECB President Mario Draghi’s comments about the ‘vigorous’ rise in core inflation supports this view,” Patel and Krpata argue.

The pair of analysts also cite the Italian government’s willingness to target lower budget deficits in 2020 and 2021 as a reason for euro optimism—earlier proposals for higher deficits had unnerved financial markets.

On Monday, having achieved the price objective of an important Head and Shoulders pattern, for the first time in a month, EUR/GBP has freedom to climb, on technical grounds at least.

 

Further Reading

 

AUD/GBP Between a Rock and a Hard Place – USD Strength

AUD/GBP versus AUD/USD and GBP/USD

Both the Australian dollar and British pound sterling have had a hard time of late caught between the rock of the China/US trade war and the Brexit hard place.

Last update: 27 Aug, 2019

Australia Cuts Interest Rates to Record Low

RBA Australian dollar AUD currency news and forecasts

The RBA has cut Australian interest rates to a record low of 1 percent in an effort to boost inflation. The Australian dollar is slightly stronger following the widely expected decision but is expected to lose 5–7 percent of its value before year-end.

Last update: 14 Aug, 2019

GBP’s Bright Start to the Year Is a Distant Memory

The British pound was the worst-performing major currency in the April-June period and remains “impossible to forecast” amid a Tory leadership battle that might force “no deal” or a general election.

Last update: 30 Jun, 2019

  

Posted to: News

 
 
Please note that the opinions of our authors are their own and do not reflect the opinion of Best Exchange Rates and should not be taken as a reference to buy or sell any financial product.
 

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