Pol­i­tics rule the roost

Charles Mur­ray of FC Ex­change ex­am­ines how Brexit, Grexit and Frexit are rul­ing the currency mar­kets

Living France - - Les Pratiques -

Fe­bru­ary was an­other po­lit­i­cally fu­elled month with both Grexit and Brexit head­lines mak­ing their way to the sur­face, amid a swell of po­lit­i­cal polls which have in­creased anx­i­ety that a Frexit could fol­low.

The pound to euro (GBP/EUR) ex­change rate fin­ished Fe­bru­ary trend­ing in the same re­gion that it had be­gun at 1.1700 – but there were still some no­table move­ments. Greece’s eco­nomic tragedy caused tremors in the mar­ket once again as un­cer­tainty rose about whether the na­tion may leave the eu­ro­zone and po­ten­tially the EU. If such an event oc­curred, Greece may be left se­verely un­pro­tected with no money to fund its forces, leav­ing it vul­ner­a­ble at a time when Turkey is push­ing ter­ri­tory bound­aries.

Ster­ling strength­ened fur­ther as far-right Na­tional Front po­lit­i­cal party leader Marine Le Pen closed the gap on her ri­vals ahead of the up­com­ing French elec­tions. With mar­kets wary of France’s po­lit­i­cal fu­ture, the pound was able to break through the key re­sis­tance level of 1.1900 for the first time in 2017 and hit a two-month high.

How­ever, ster­ling soft­ened as dis­ap­point­ing UK in­fla­tion data emerged, reach­ing 1.8% rather than the 1.9% fore­cast. In­vestors were hop­ing for higher in­fla­tion num­bers in order to push the Bank of Eng­land (BoE) to­wards in­creas­ing in­ter­est rates. Ad­di­tion­ally, the pound weak­ened on ac­count of the on­go­ing Ar­ti­cle 50 de­vel­op­ments and news that an­other Scot­tish ref­er­en­dum could take place.

Look­ing ahead, polls have sug­gested Le Pen could be the cham­pion of the first elec­tion on 23 April, but is un­likely to win the sec­ond round. How­ever, if the con­tro­ver­sial leader were to win, the euro could sink as France would un­der­take its own EU ref­er­en­dum.

Both the pound and euro could soften fur­ther ver­sus the US dol­lar as spec­u­la­tion in­ten­si­fies that the US Fed­eral Re­serve will hike in­ter­est rates. If you’re con­sid­er­ing trans­fer­ring money over­seas, talk to a bro­ker about how to pro­tect your funds from ad­verse mar­ket move­ments. fcex­change.com

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