The last week on the markets was pretty eventful, as we saw the GBP/EUR exchange rate hit a very short-lived high of 1.20 following the result of the Italian referendum on constitutional reform. By the time Monday morning came around, the markets had settled and during the Supreme Court hearing, we saw the GBP/EUR exchange rate back at the 1.17 level.
The Supreme Court appeal has proved to be very volatile for the pound, as (contrary to many people's belief) it was not just a simple re-run of the previous court case; The UK government came more prepared this time and used a more complicated line of argument, which could turn the case around for them. During the Supreme Court hearing, MP's have also cut a deal with Theresa May to push through a mandate that Parliament will support her deadline to trigger Article by March 2017, providing that Theresa May briefs Parliament on her plans for negotiations with the EU and is transparent. With the verdict not expected until January 2017, the markets are extremely weary of the pound.
Thankfully for euro buyers, Mario Draghi changed the direction of GBP/EUR exchange rates after the ECB extended their QE programme past their initial deadline of March 2017, but reduced their monthly volume from 80bn euro down to 60bn euro. It remains uncertain if Mario Draghi will stick to this, but for now, this has boosted GBP/EUR exchange rates beyond 1.19 again.
Over the coming week, the main event is the Fed rate decision on Wednesday; an interest rate hike of 0.25% seems to be priced in as the market believes there is a 90% chance of this happening; and if this does happen I will expect to see a fall in GBP/USD and EUR/USD exchange rates due to dollar strength; but I would also expect to see a higher GBP/EUR exchange rate following this.
Though the interest rate hike is priced in, there is always a chance Janet Yellen could decide to not go ahead, so it is not a guarantee this will happen; either way if you have a USD purchase coming up and would like to lock in prices, now is a great time as the pound has been strengthening.
It is the same story for the euro, with the Supreme Court decision looming in January and Article 50 to be triggered in March, it is uncertain how the pound will react; but the current exchange rates are nothing to complain about (considering we were at 1.08 just over a month ago!)