CDU Votes in Favour of Coalition Deal – Euro Pound (EUR/GBP) Exchange Rate Outlook Grows Positive
The Euro Pound (EUR/GBP) exchange rate could see increased support in the near-term if German Chancellor Angela Merkel’s hopes for a grand coalition are realised.
Merkel’s Christian Democratic Union (CDU) approved the grand coalition agreement with the Social Democrats (SPD) on Monday, with only 27 out of 975 party delegates voting against the formation of the new government.
The wide margin took markets by surprise somewhat, with many members of the CDU being upset not only with Merkel’s ongoing position as head of the party, but also with her decision to cede control of the finance ministry to the SPD.
It should be stressed, however, that the SPD has yet to vote on whether to reject, or accept the deal, with the vote results expected to be released on the 4th of March.
This is a significant hurdle to overcome, with many SPD members being entirely against the idea of engaging in a coalition with Merkel after the extremely poor election result last year.
‘Now I can only say to the SPD that I hope many members feel the same responsibility for giving Germany a good government’, Merkel said, speaking to the press. ‘I think we can achieve a lot together for Germany and its people’.
Nonetheless, markets seem to be very much for a coalition between the two parties – happy for the 5-month void of governance and the threat of a return to the polls to end.
Pound (GBP) Exchange Rate Liable to Gain on BoE Rate Hikes in 2018
Capital Economics, an independent economic research association have revealed that they expect the UK’s economy to grow by 2% in 2018, optimistic on the back of ever-buoyant inflation, accelerating wage growth and the prospect of
The group has asserted that other researches were being pessimistic about the UK’s economic prospects, stating:
‘We think the appreciation of the Pound since October has some room to run. Indeed, our expectations of economic growth of 2% or so this year, compared to the notably gloomy consensus forecast of about 1.5%, points to an appreciation of Sterling ahead’.
This outlook has provided some reassurance to Pound bulls, with many now pricing in a rate hike from the Bank of England (BoE) as soon as May this year.
It should be noted, however, that the BoE has stressed that progress being made in Brexit negotiations will be an important factor in deciding future monetary policy.
Brexit Transition Talk Progress – What can we expect for the Euro Pound (EUR/GBP) Exchange Rate?
The Euro Pound (EUR/GBP) exchange rate could see additional volatility this week as markets respond to UK Prime Minister Theresa May’s Brexit speech.
Mrs May is expected to surmise progress that has been made on the Brexit transition front, with markets hoping for clear advancement and a greater deal of clarity for British businesses regarding the UK’s post-Brexit relationship with the EU.
Notable impasses remain, however, with the EU insisting that the UK be subject to new EU laws during the 2 year transition period, and general infighting occurring within the Conservative party in regards to staying, or leaving the customs union after Brexit.
If Mrs May reveals progress then the EUR/GBP exchange rate could come under increased pressure.
Conversely, stagnation would only panic the markets, particularly with trade talks scheduled to begin in March.
This would afford the single currency even more room to climb.
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