EDITOR’S NOTE: The Pound has been volatile against the Euro in recent weeks thanks to the Scottish referendum polls showing the vote closer than markets expected. But turbulence in the UK is not the only factor driving exchange rates today: The Eurozone also has its problems. Foreign currency exchange specialist Luke Trevail looks at the factors driving exchange rates, and what the near future might hold.
All eyes fall on the much spoken of Scottish Referendum this week with the five million or so people living north of the border making their votes as I write this article.
Thus far the opinion polls have suggested that the NO campaign has it by a small margin, which of course means that the YES for independence contingent aren’t far behind.
With the threat of a huge divide being created in this small island of ours the pound is at considerable risk of falling, according to J.P. Morgan analysts by 10-15% in the event of a YES vote. The opposite perhaps will be true if we remain united and the NO’s win. The spike upwards won’t be as significant as 10% as the market is already expecting this outcome however. Sterling will be effected drastically regardless of the result, as the political picture of the UK will change regardless of the result.
For Sterling versus the Euro so far this month we’ve had lots to get excited about, or not depending on which side of the buy/sell fence you sit. The European Central Bank surprised us all by cutting rates to 0.05% earlier in September which has weakened the single currency and looks set to continue.
It seems clear that the ECB are now realising the mess that they are in and as a result need to make drastic changes to stimulate the economy. This will almost certainly weaken the euro further and couple this with the pound’s potential move upwards with the referendum taking place as we speak then €1.30+ could be seen soon.
As always, I’m ringing the alarm, pressing the panic button and waving the white flag for anyone still with the euro in their hand hoping for better rates. I fear you’ve missed the boat on this and with the rhetoric from the Bank of England who are talking about raising rates and the European Central Bank who’ve just cut rates couldn’t be more different.