GBP/EUR: Political developments will be important – Lloyds Bank

The progression of Brexit negotiations, UK political developments, and European elections (in Germany and Italy) will be important considerations for GBP/EUR going forward, according to Gajan Mahadevan, Quantitative Strategist at Lloyds Bank.

Key Quotes

“Of all the drivers of GBP/EUR, the least tangible are those related to political developments. Recently, the market’s interpretation that both the hung parliament and the UK government’s first official acknowledgement of its post-Brexit financial obligations to the EU are more likely to lead to a ‘softer’ Brexit have been supportive of GBP. Yet, whether this speculation proves correct is another matter entirely.”

“The nature of this uncertainty and potential volatility associated with such a risk premium only serve to reduce our conviction in our central forecast. Elsewhere, the German (Sept-17) and Italian (by May-18) elections will also be carefully watched by the market. The former should see Chancellor Angela Merkel win another term in office, once again leading a CDU / CSU coalition. The latter presents the greater risk of an outlier event for markets, but at this stage, is too far in the future to be a major concern just yet.”