GBP/EUR at 1.14 as Euro Suffers Political Uncertainty, AUD Drops as USD Strengthens
27 September 2017 by News DeskEUR Falls on Politics as Angela Merkel’s Party Loses Support
The euro has had a tough start to the week following the German election as political uncertainty shrouds the market. Monday saw the single currency record its worst day in the market this year and sterling managed to reach a 10-week high. The election saw Chancellor Angela Merkel attain her fourth term, but her party—the Christian Democratic Union—lost more support than had been predicted. Instead, the Alternative for Germany party managed to surge to third in the election and steal some of the votes. As Merkel attempts to form a coalition, which is no small feat, the euro may be under significant amounts of pressure.
Additionally weighing on the euro is European Central Bank (ECB) President Mario Draghi’s comments regarding monetary policy. Draghi suggested that the recent volatility in the euro exchange rate may alter the path of the central bank’s monetary policy tapering in coming months. Draghi stated: ‘Downside risks continue to exist, mainly related to global factors and developments in foreign exchange markets.’ The euro has strengthened notably against a host of other currency majors this year, rising by around 13% against the US dollar (EUR/USD).
Donald Tusk Crushes Hopes of UK Brexit Trade Talks
Meanwhile, the pound has also faced problems this week after European Union President Donald Tusk crushed hopes that the UK may be able to soon begin discussing trade deals. Tusk suggested that although Theresa May’s speech last week was ‘realistic’ and that the UK’s ‘philosophy of having a cake and eating it is finally coming to an end’, that ‘there is not sufficient progress yet’ to be able to turn to trade talks. Markets will be watching the UK’s gross domestic product (GDP) reading due out on Friday which could create some significant market movement.
Australian Dollar (AUD) Falls as Attention Turns to USD and Fed Rates
The pound managed to climb against the Aussie dollar on Wednesday (GBP/AUD) after the Australian currency dropped to a multi-week low against some currency majors. The Australian dollar softened against the US dollar as expectations rose that President Trump would soon announce details on tax reforms.
Currency strategist Elias Haddad commented: ‘Expectations the Trump Administration and senior Republicans lawmakers in Congress will unveil a simulative tax reform plan over the next 24 hours is supporting a firmer USD. President Trump noted overnight the planned tax reform measures will cut taxes “tremendously” for the middle class, lower the corporate tax rate, and bring back trillions of dollars invested overseas.’
Additionally supporting the US dollar was Fed Chair Janet Yellen stating she backed higher interest rates. These factors have created AUD weakness as markets turn their attention to USD.
The pound is currently trending in the region of 1.1400 interbank versus the euro (GBP/EUR). The pound to Australian dollar (GBP/AUD) exchange rate is trading at around 1.7087 interbank.
Disclaimer: This economic update is provided by FC Exchange a Global Reach Group Company, industry leaders in foreign exchange. Authorised affiliates are permitted to reuse content.
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