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Forex focus: euro has experts sitting on the fence

What are the chances of the euro reaching €1.42 again any time soon? We asked the experts

It was only a few weeks ago that sterling peaked at a seven-year high against the euro at €1.42. Since then the single currency has regained around six cents.

That might not sound much, but if you were planning on spending £100,000 you’d be €6,000 worse off and if you received £1,000 a month you’d have €60 less to spend.

So what are the chances of the euro reaching €1.42 again any time soon? A straw poll among currency specialists showed opinion was divided.

Among those in the positive camp, is Charles Murray of FC Exchange ( fcexchange.co.uk ), who said: “In the short-term 1.40-plus is still a strong possibility, as Greece is dangerously close to running out of money 20 April touted as a likely date for this to happen.”

Alistair Cotton from Currencies Direct ( currenciesdirect.com ) also expects the rate “to move back towards 1.40 over the coming months”.

Caxton FX’s ( caxtonfx.com ) Nicholas Ebisch is even more upbeat: “There is scope for the rate to return to its peak of 1.4250 soon. The predictions for the euro over the next three months are that there will be steady euro weakness.”

Trevor Charsley at AFEX ( afex.com ) agreed, saying: “On the premise that we get a similar government to the incumbents we do see GBP/EUR testing 1.4250 after the election. The next target after this is 1.4500.”

Angus Campbell from FxPro ( fxpro.co.uk ) doesn’t believe there is much that can help the euro, saying, “It is hard to see the euro regaining too much of the ground it lost in the first quarter of the year despite its recent best efforts to do so.”

On the other side of the euro fence, among the pessimists is Chris Towner of HiFX ( hifx.co.uk ). He said: “We would expect the euro to strengthen back again towards €1.30 in the months ahead.”

Josh Ferry Woodard is also in this camp, saying, “As long as Greek officials manage to keep the Hellenic nation inside the eurozone then we could see GBP/EUR weaken towards 1.32-1.34 over the next three months.”

Those sitting on the fence include Chris Saint of Hargreaves Lansdown (LSE: HL.L – news) ( hl.co.uk ) is reluctant to commit while the UK fights its closest general election in decades. He said: “Sterling’s 10pc rise since the start of 2015 to highs of €1.4250 looked to be a little too far too fast and I don’t see it reaching these heights again before we know the outcome of the election. However, the euro’s longer-term weakening trend looks to be intact and I suspect sterling could re-test these highs later in the year, particularly if ‘Grexit’ fears linger as UK political risks fade.”

Charles Purdy of Smart Currency Exchange ( smartcurrencyexchange.com ) is also hedging his bets: “The euro is unlikely to show major strengthening in the short term but also unlikely to see further significant weakness, especially as other countries such as the UK and the US will be very reluctant to see their exporters unduly penalised.”

The huge question mark hovering over the direction of the pound is the UK election in May.

David Kerns of moneycorp ( moneycorp.com ) said: “The GBP/EUR rate appears to have peaked in the short term at €1.42 as sterling itself has come under selling pressure following some disappointing economic data releases at home.

“As the general election looms ever closer that too can have a detrimental impact on the pound as investors shy away from the UK until the leader of the next parliament is known.”

A hung parliament of some form or another looks likely at the moment and none of the outcomes is completely positive. A slim Tory win, while generally encouraging for the pound, has the drawback that David Cameron’s promised referendum on the EU will depress sterling.

However, the biggest threat to the eurozone is the risk that the Greek debt crisis will mean it exits the currency bloc. As negotiations between the Greek government and its creditors heat up and deadlines get nearer, starting this week, the euro is likely to start wobbling.

“The main danger from a ‘Grexit’ is that it sets precedence for departure from the euro,” said Charsley. “Something that Mario Draghi the ECB governor has said is irreversible. If he is proven to be wrong, this could be the beginning of the end for the euro.”

And that’s not all. The eurozone is still struggling with too many out of work, particularly in the southern states, low or no inflation and quantitative easing, which all combine to keep downward pressure on the currency.

But, from a self-interested point of view, a continuing weak euro is going to be welcomed by businesses and expats getting funds in pounds.

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