GBP/EUR is forecast to recover through 2017 as sensitive politics overshadow the Euro and the Pound Sterling strengthens with the Brexit process beginning.
Recently, the Pound sterling has bounced back against the Euro as the majority of foreign exchange markets turn their attention to Trump’s presidency and away from Brexit.
The heightened political risk that Trump’s policies will likely mean for the Eurozone will make for an interesting year ahead. For those who have been looking to buy Euros with the Pound Sterling have had a difficult 2016.
From the GBP/EUR highs of 1.3675 to the flash-crashes with a low of around 1.06, the GBP/EUR has many analysts believing that the worst is over after the recent stabilization of the Sterling.
The exchange currently rests around a two-month high with rates as high as 1.12-1.15 depending on who you are sending money through, such as CMC Markets.
On November 17, analysts at Barclays told their clients that they believe that the GBP/EUR exchange should make a recovery in the next few months.
They believe that due to the uncertainty over whether there was going to be a hard-Brexit, the Pound Sterling was discounted below its fair value.
This belief was further confirmed by strategists at Nomura stating that the Pound Sterling’s weakness in October was due to the bearish view on a hard-Brexit and could not be justified by the current UK standing.
Nomura strategists believe that the markets have now seen the bulk of the hard-Brexit adjustments to the Sterling and it will begin to rally soon. They encourage those who are betting on the recovery of the Pound Sterling to be patient.
Analysts speculate that the medium-term outlook for the GBP/EUR looks very compelling but adds that long-term buyers in UK investments should wait for the Brexit discussions before doing anything and to just be patient in the meantime.
The Brexit negotiations will likely cause more flash-crashes as the UK government’s decisions on the path to trigger the all-important Article 50, leaving the GBP further exposed.
Barclays further says that the Sterling appears to be on the winning end of the Euro-UK relationship as it can be in a safe-haven from the politics of Europe. They predict that the EUR/GBP will further depreciate to 0.76 by the end of the 2017 year, or 1.3157 in GBP/EUR terms.
Barclays believes that the Euro is the most at risk in the coming year with core rate steeping fears and volatile politics in Europe, often referred to as the ‘politics of rage’. The GBP and the USD have recently passed their politic risk and now the focus will begin to turn towards Europe in the coming year, according to analysts at Barclays.
With the Italian referendum, analyst say the EUR is at risk of EMU-threatening events in 2017.
The biggest concern for the EUR is the European Central Bank that holds two-sided risk elements for this single currency.
The ECB is set to announce tapering in March of 2017 but goes on to say that they will retain the ability to reflate the economy – a sustained downward trend in the EUR/USD. Analysts therefore predict that the EUR/USD exchange will sit at 0.99 by the end of 2017.
Forbes’ analysts say that with a stronger dollar, emerging markets will struggle as they always have in the past when the dollar was strong. Weaker commodities such as oil are not good for emerging markets.
Lloyds Bank has recently told the same thing as Barclays told their clients.
They are also looking at the ECB being a weakness to the EUR, spurring their backing of the GBP/EUR forecast for the coming year.
With the expectation of the announcement of an extension of the QE in March by the ECB, the Euro will remain under pressure. They believe that it is a reflection of the on-going risk and slow growth despite the existing stimulus measures.
The Autumn Statement is the key driving force in the near-term outlook for the Pound Sterling. The majority of analysts expect a conservative budget with some infrastructure tax cuts.
Analysts at TD Securities say that with Trump’s administrations, the markets may be disappointed with sky-high fiscal stimulus. They believe that this situation will leave the Bank of England with the majority of the heavy lifting, which is not a good thing for the Pound Sterling.