GBP/EUR Exchange Rates Storm Ahead; ECB Suggests Stimulus in Response to US Elections

Modified: Wednesday, 9 November 2016 17:05 BST - Written by John Cameron

STORY LINK GBP/EUR Exchange Rates Storm Ahead; ECB Suggests Stimulus in Response to US Elections

The Pound Sterling to Euro exchange rate has traded within a wide range today as the markets react to the shock victory for Donald Trump in the US election.

Pound Sterling to Euro Tears Ahead as Trading Session Draws to Close

The Euro received a bigger boost from the US election results than the Pound, so while the Pound was bullish elsewhere, GBP/EUR started the session on the decline.

Markets were fleeing from the US Dollar and commodity assets, making the Pound and Euro particularly appealing. Towards the end of the session, Euro supremacy has worn off, with the Pound currently trading up around 1.5%. This is because the European Central Bank (ECB) had stated that it was carefully watching the markets and stood ready to act. Speaking not just of the current volatility, but also of the odds of a December rate hike from the Federal Reserve, the ECB’s Nowotny observed;

‘We are prepared; also, in an emergency, to intervene. It had been seen as very probable that they would raise rates. Whether that’s still so probable, no one can say. That has an effect on rate developments in Europe.’

EUR/GBP Weakened; Markets Disagree with Analysts over Potential for Fed Hike

Many believe that widened policy divergence between the US and the Eurozone in December was now potentially off the table. Stuart Hoffman, PNC Chief Economist, noted;

‘With much greater economic uncertainty likely in the months ahead, the Federal Open Market Committee could decide to hold off on an increase in the fed funds rate; PNC had been expecting the FOMC to raise the rate at its December 13-14 meeting, but that looks much less likely now.’


This helped the GBP/EUR exchange rate to record significant advances. However, markets aren’t so convinced that a Fed hike was off the table, with the US Dollar remarkably advancing above opening levels. This pushed the Euro lower thanks to the inverse correlation between the two, further aiding Pound Sterling.

Pound Sterling to Euro Exchange Rate Forecast; Pound to Remain in Demand on Election Jitters?

Domestic data for either the UK or the Eurozone is in fairly short supply for the rest of the week. This leaves it likely that GBP/EUR exchange rates will be dictated by continued market reaction to the US election. The Pound Sterling is, surprisingly, well positioned to benefit from this. With the threat of additional stimulus in the Eurozone in response to Trump’s victory, investors are going to be disinclined to buy into the Euro.

The British Pound, on the other hand, has already been battered lower by the markets following several weeks of Brexit-related dovishness. This means that downside risks for GBP are low, compared to higher upside risks. With the US Dollar and commodity assets currently trading turbulently, markets might re-evaluate the Pound.

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