GBP/EUR – General Elections within the Euro zone could weaken the single currency
This year will see three general elections within the Euro zone, all of which could end with a far right party in power. Geert Wilders, leader of the Party of Freedom is currently leading the polls to become the new Dutch Prime Minister. It seems it is a real possibility that the Netherlands could leave the EU. Wilder has made his intentions clear to leave. It is a similar situation in France with Marine Le Pen currently favourite to take control in France.
If one of these far right parties gains control, expect a referendum. We saw how the Pound suffered following the referendum, I would expect substantial losses for the Euro.
Also keep in mind- Greek Debt and Italian Bank’s bad loans. Both of which spell further trouble.
I feel the pound is currently chronically undervalued and I think Sterling will rally when trade deals become more apparent following the triggering of article 50. Before the invocation of article 50 there is potential for further falls for the pound, but I would not expect anything too substantial as I strongly believe the uncertainty surrounding Brexit is already priced in to the exchange as do Morgan Stanley’s analysts who have stated Sterling is the”most undervalued currency in the world and will rebound to it’s pre-Brexit levels.”
If you have to trade before this event it is vital you are in touch with an experienced broker in an attempt to maximise your return.
GBP/USD – Can we expect interest rate hikes from the Fed?
The US economy is currently very strong and does in fact warrant a rate hike. Janet Yellen, the head of the Federal Reserve has indicated there could be as many as three rate hikes in 2017 and has hinted to one as early as March. I take this with a pinch of salt. Forward guidance was similar the year before and we only saw one rate hike in December. Trump has also stated he feels the strength of the US dollar is hindering exports and a rate hike would exasperate the problem. If I was a US dollar seller I would be taking advantage of current rates while close to a 31 year high, procrastination could cost you. I think Sterling will rally as early as late Q2.
GBP/AUD – Are the low 1.60s warranted?
Data releases from down under have been very positive of late and Sterling is finding it very difficult to make any significant gains. GBP/AUD is currently sitting in the 1.61s. The Reserve Bank of Australia has hinted toward rate hikes, but as in the US, if the value of the currency is to high it will hinder exports. The risk of an overvalued currency could prove costly in Australia due to their heavy reliance on the Chinese purchasing raw materials. It would be unwise to make the Chinese look for alternatives.
Despite all the positive data from Australia, I expect Sterling to rally,pre-referendum announcement GBP/AUD was at 2.20. 1.61 is simply not warranted in my eyes.
Trading short term however be sure to get a broker. Until after article 50 is invoked it will be extremely difficult to time your trade.
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