GBP/EUR: Politics primed to dominate 2017 – Lloyds Bank

Gajan Mahadevan, Quantitative Strategist at Lloyds Bank, notes that since the middle of last November, GBP/EUR has been in a range, between 1.14 and 1.20.

Key Quotes

“The recent European Central Bank decision to extend its quantitative easing programme (albeit reducing its pace of monthly asset purchases, from €80bn to €60bn) and increase the universe of eligible bond purchases by amending the qualifying criteria, caused GBP/EUR to briefly spike above 1.20. The rise, however, proved short-lived, as resurfacing concerns around a ‘hard’ Brexit have weighed on sterling.”

“Given that we expect interest rates in both regions to remain on hold this year, monetary policy developments are likely to have little bearing on the currency pair. In contrast, potential changes in the political landscape, which could be triggered by Dutch (March), French (April / May), German (likely September) and possibly Italian elections, have scope to drive significant volatility. Over the next twelve months, our central expectation is for GBP/EUR to appreciate towards recent range highs, reaching 1.21 by December-2017.”