Jason Wong, Currency Strategist at BNZ, notes that the EUR has held up relatively well considering the Brexit vote and there has been little sign of spillover effects to date from a weaker GBP.
“The list of upcoming elections in Europe over the next 18 months is long, including the Italian constitutional referendum in December, the French Presidential vote in May and German Federal election about a year away. These represent a key source of uncertainty. More positively, Europe runs a strong current account surplus and the outlook for monetary policy is an eventual tapering of ECB asset purchases. The net result is that the cross rate is expected to be relatively steady around recent levels, and well above our long-term fair value estimate of 0.54-0.55.”