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Over the last few months, we’ve seen the GBP/EUR rate stay within a fairly tight trading range, therefore it’s the small moves that sterling buyers and sellers are looking out for. Political news over the last few days has given those looking to invest in the UK a good opportunity. Theresa May was forced to respond to the EU’s draft Brexit agreement to insist, again, that there will be no hard border in Ireland. Chief negotiator, Michel Barnier’s statement suggested that a transition period was not a given as he released the first draft of the Brexit withdrawal agreement.
May insisted that no UK prime minister could ever agree to the draft text as it stands but looking through the specifics of words from each of the competing sides, the wider market is concerned that such a standoff at this stage only makes it more likely that discussions could fall down completely in the future. We will see how things pan out over the course of this month, but definitely, something to watch very closely as there could be scope for sterling to weaken even further.
Despite the risk of Brexit negotiations grinding to a halt, there are some key political talking points this month which could add strength to the Pound. On Sunday 4th March, we have the long-awaited Italian election. It’s believed by investors that if voters elect a party deemed unfriendly by the markets, funds will flow from the Euro into the Pound, as well as other currencies that are considered safe havens.
Of course, there’s no certainty that a non-mainstream, anti-establishment party will succeed on Sunday but it certainly provides sterling with potential to move up. This of course is interesting to those looking to move GBP into other currencies. As well as the Italian election this month, we have further Euro risk with the Social Democratic Party voting on whether or not to join Angela Merkel’s Christian Democratic Union. With these combined political risks, there is a chance we could see a jump back up for sterling. Any move up however will likely be limited as Brexit is still deemed the biggest risk to the markets.
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