Of FC Exchange, says that despite a shaky start to the year, there’s reason to be confident
Risk has been the key word in 2016, and heightened market risk has brought uncertainty not only for the GBP/EUR rate but for the world market as a whole. The GBP/EUR rate has fallen close to 6% since the start of the year, the euro being the main driver of this movement. With world markets beginning to grow nervous over the tensions in the Middle East, plus the deceleration of economic growth in China and falling commodity prices, it was the single currency that was able to benefit. The euro’s apparent safe haven appeal in a world full of trepidation has allowed it to reclaim a large proportion of the ground given away to the pound in 2015, breaching the 1.30 interbank rate (IB) for the first time in a year.
The pound’s run of good form has also come to an end for the time being, with the Bank of England, once again, confirming that inflation in the UK is likely to remain low for the foreseeable future, with interest rates unlikely to go up in 2016. The UK’s chancellor George Osborne gave a harsh warning early in January that “a dangerous cocktail of economic risks” could seriously damage the UK economy in 2016.
The European Central Bank (ECB) has also played a big part in the rise of the single currency this year. The comments coming from the central bank regarding its extensive quantitative easing programme and its negative deposit rates have all been upbeat, with the Bank of France’s governor and ECB member, François Villeroy, stating that the “eurozone economy is picking up”.
However, comments from the ECB president, Mario Draghi, on 21 January did contradict this view somewhat, as he mentioned “downside risk has increased” and that they are prepared to act when necessary. The fact the ECB is ready and prepared to act if market conditions change drastically has allowed some of the negative news with regards to the euro to be muted, as investor confidence in the region begins to grow.
If we can see a considerable upturn in the UK’s data in the coming months, then perhaps the GBP/EUR rate can push back up to the mid-1.35 IB levels. Inflation and manufacturing have both showed signs of a marginal recovery, which is a promising development this year.
All in all, 2016 has started in a tempestuous fashion, but despite this, the property market in France remains buoyant. With this in mind, we anticipate that many property buyers will be focusing on forward contracts. fcexchange.co.uk