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