European elections? It’s what comes NEXT that matters for the pound

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21 May, 2019

European elections? It’s what comes NEXT that matters for the pound
 
The results of the European elections have been largely priced-in for the Pound.  It is what happens next with the Conservative leadership contest that will determine if Sterling will prolong its run of losses.
 
This is the bold observation from Nigel Green, CEO and founder of deVere Group, one of the world’s largest independent financial advisory organisations, with more than $12bn under advisement.
 
It comes as millions of citizens across the UK and the rest of the European Union head to vote this week in the pan-European elections.
 
Mr Green affirms: “Voters are likely to deliver a bloody nose to the UK and EU hierarchy in these European elections.
 
“In the UK, due to the ongoing Brexit chaos, it can be expected that voters will move away from the two big parties, Conservative and Labour, and towards the Brexit Party, the Liberal Democrats, Change UK and The Green Party.  This will dramatically change the political landscape.
 
“In normal times, this would cause the Pound to lose value against the Euro.  But these are not normal times.
 
“The groundswell has been building for sometime and the markets have largely priced-in this result, meaning there should not be a significant further drop in Sterling against the Euro.”
 
He continues: “The impact could be offset by a similar drop in the Euro if, as expected, populist parties across the eurozone do well at the polls.
 
“Marine Le Pen’s far-right National Rally party in France, Matteo Salvini’s The League in Italy and Gert Wilders’ Freedom Party in The Netherlands, amongst others, have all openly expressed scepticism regarding the Euro.”
 
However, it is what happens in the UK after the European elections that will determine the Pound’s trajectory.
 
Mr Green explains: “Whether the Pound will prolong its longest run of losses against the Euro since the single currency’s introduction will depend on who imminently takes over from Prime Minister Theresa May.
 
“Should, as expected, The Brexit Party, led by Nigel Farage, do well at the European Elections, the chances are higher that whoever takes over from Mrs May following a leadership contest would push for a no-deal Brexit.
 
“This would cause more downward pressure for the Pound.
 
“Boris Johnson, a frontrunner in the Conservative leadership contest to be the next Prime Minister, has in the past pushed for a no-deal exit from the bloc.”
 
The deVere CEO concludes: “The European elections might cause a minor knee-jerk reaction in the currency markets.
 
“But all eyes should be on the battle for the Conservative leadership.”