You will want the EUR/GBP exchange rate to keep strengthening – and there are a couple of reasons why it might.
Economic data from the eurozone has been fairly solid this year, leading to an increase in the number of people pushing for the European Central Bank to start tightening monetary policy. If it does start winding down its expansive quantitative easing programme over the next few months, the euro is likely to surge in response. EUR/GBP could also gain before the end of the year if the US Federal Reserve fails to deliver on its promise to increase interest rates for a third time in 2017. With President Trump’s plans to ‘make America great again’ failing to get off the ground and US inflation not picking up as much as forecast, the Fed may well reconsider raising borrowing costs. Such an action would broadly weaken the US dollar, driving the euro higher in the process.
Of course if the UK’s EU exit negotiations hit stumbling blocks the pound’s poor performance is also likely to continue.
All in all, it appears fairly safe to assume that the EUR/GBP exchange rate will keep strengthening. However, we cannot completely discount the pound bouncing back in 2018. For one thing, if Brexit negotiations progress positively, optimism in the UK’s longterm economic outlook will improve and give the pound a boost. For another, the Bank of England might start increasing interest rates. Slowing UK inflation scuppered the odds of the bank adjusting borrowing costs in the short term but its policy setting committee remains divided on the issue. If the number of policymakers voting for an immediate adjustment rises then so will the pound.
There is quite a lot on the horizon, so you may want to talk through options such as forward contracts with a specialist.
Question answered by Pippa Maile of Currencies Direct. For more information on international money transfers with Currencies Direct see www.currenciesdirect.com/france or call +33 (0)4 22 32 62 40
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