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5 Reasons The Pound May Rise Versus The Euro in December 2018

Market Commentary5 Reasons The Pound May Rise Versus The Euro in December 2018
5 Reasons The Pound May Rise Versus The Euro in December 2018
Image credit: Pixabay.

Welcome to Pure FX's latest outlook for the pound to euro exchange rate. This tells you when it could be the best time to exchange pounds to euros, for your money transfer!

Sterling could climb versus the common currency in December 2018! The pound to euro exchange rate stands at 1.13 today.

By contrast, back on August 29th, 3 months ago, sterling was as low as 1.10 versus the euro. So the pound has since strengthened by +2.72% or +3 cents against the euro.

To put this into context for you, a £250,000 transfer to the Eurozone would be worth 282,500€ at today's exchange rate, or +7,500€ more than 3 months ago! So it could be the best time to buy euros, to emigrate to Spain or France, and sterling may rise higher in December 2018!

1. The Euro May Fall, as The Eurozone Economy Slowed in November.

The pound to euro exchange rate may rise in December 2018, because the Eurozone economy decelerated sharply this month, said closely-watched data last week.

Business activity in the common currency bloc fell to 52.4 in November, according to IHS Markit, below forecasts for 53.0, and the lowest figure in 4 years. The Eurozone economy slowed last month, as Germany went into reverse, and US president Donald Trump's trade war rhetoric hurt confidence.

This may slow Eurozone GDP growth to just +0.2% in Q4, and so boost sterling versus the euro in December 2018!

2. The Common Currency Could Weaken, as Eurozone Core Inflation Remains Low.

The pound may also jump versus the euro next month, because core inflation in the Eurozone is still below target.

Core inflation, which measures price pressures in the currency bloc excluding imported food and energy prices, held at 1.1% last month, said Eurostat. This is far below the European Central Bank's target of close-to-but-below 2.0%.

What's more, investment multinational Goldman Sachs reckons that Eurozone core inflation will remain subdued over 2019, pointing to flat economic growth in the common currency bloc. In turn, this may lift the pound versus the euro!

3. The Euro May Lose Out, as The ECB Could Keep Interest Rates Low for Longer.

Sterling may also strengthen versus the euro in December 2018, because the Eurozone's central bank, the European Central Bank (ECB) may keep interest rates low for longer.

The ECB is widely forecast to end its program of vast monetary stimulus, called quantitative easing, next month.

Yet with Eurozone business activity slowing, and core inflation below target, the ECB may keep interest rates at all-time lows of 0.0% for longer, to stimulate both economic growth and price pressures. This would weaken investment returns in the Eurozone, boosting sterling versus the euro!

4. The Euro May Struggle, as Italy's Deficit Dispute with The EU Continues.

In addition, sterling may fly higher versus the euro next month, because Italy's deficit dispute with the European Union is ongoing.

In recent weeks, Rome has twice submitted its 2019 budget proposal to Brussels with a planned deficit of -2.4%, which Brussels has rejected. Rome argues that this deficit is necessary to stimulate Italy's moribund economy, while Brussels fears that it will exacerbate Italy's public debt.

Rome's populist government of the Northern League and Five Star Movement has so far been unwilling to back down. So this dispute may lift sterling versus the euro!

5. Sterling May Strengthen, as The EU Has Approved Theresa May's Brexit Deal.

Moreover, the pound to euro exchange rate may strengthen in December 2018, because the EU has approved UK Theresa May's Brexit agreement.

Yesterday, the 27 leaders of the European Union signed off Mrs. May's planned exit of the UK from the EU. This exit includes an extended transition period, to give businesses time to adjust, plus an outline for a future trade deal.

Now, this agreement may give confidence to UK businesses to hire employees and invest, knowing that the UK will exit the EU smoothly in March next year. This too may boost the pound in December 2018!

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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or email peter.lavelle@purefx.co.uk.

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