UPDATE
The European Central Bank cut all of its rates and stated they would expand asset purchases. This caused the single currency to dive significantly, dropping around -1.0% against the British Pound.
The central bank dropped its benchmark interest rate to zero, and cut the rate for banks to store money overnight to -0.4%.
However, the EUR depreciation proved short-lived after comments from President Mario Draghi prompted traders to buy the Euro in droves. Draghi stated that the bank was unlikely to consider cutting the overnight cash rate again.
The EUR/GBP Exchange Rate rallied by around 0.9% in response, trending in the region of 0.7801 towards the close of Thursday’s European session.
Earlier…
Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast to Avoid Large Depreciation ahead of the Central Bank Meeting
The Euro to Pound Sterling (EUR/GBP) exchange rate ticked fractionally lower by around -0.1% on Thursday morning.
As traders await the policy decision from the European Central Bank, the Euro cooled versus its major peers. The depreciation has been somewhat limited, however, despite near-universal agreement that the central bank will look to ease monetary policy outlook today.
The reason that the Euro hasn’t endured a steeper decline thus far this morning is due to trader reluctance to second-guess the nature of the stimulus measures. Last December traders were caught by surprise after having priced-in far more aggressive measures than policymakers actually employed. Investors have since taken President Mario Draghi’s words with a pinch of salt.
The Euro’s slight downtrend today can actually be linked to less-than-ideal domestic data. January’s German Trade Balance data showed that the surplus narrowed beyond expectations. This was due to an unexpected contraction in exports which is likely to be the result of Volkswagen’s well-publicised issues.
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7722.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast to Gain as Traders Pull Away from European Majors
If ECB officials ease policy as has been predicted by most analysts,Pound Sterling is likely to find support as traders pull away from European majors with close ties to the Euro. The drop in the value of the Euro is also Sterling supportive given that the Pound is still holding a weak trade weighting amid ‘Brexit’ uncertainty.
Aiding a fractional GBP appreciation thus far this morning was a positive result from the solitary British economic data publication. February’s RICS House Price Balance met with the market consensus of 50%. However, this headline figure masks some concerns that only 3% of RICS members reported a rise in house prices in London.
RICS chief economist Simon Rubinsohn said: ‘Anecdotal evidence has suggested that a combination of exogenous factors is contributing to the overall picture in prime London, with tax changes, foreign market slow-downs and uncertainty over Brexit all being mooted as potential reasons behind the changes in demand. This is not necessarily indicative of the long-term market and the depreciation of the Pound could encourage overseas investors back in to the market as could the outcome of the European referendum.’
The Euro to Pound Sterling (EUR/GBP) exchange rate dropped to a low of 0.7707 during Thursday’s European session.
EUR/GBP Exchange Rate Forecast: ECB Interest Rate Decision to Provoke Significant Volatility
Given trader reluctance to fully price-in expectations of ECB easing, there is a very real chance that the Euro will extend losses considerably. However, there is also the chance that policymakers will undercut expectations, in which case the single currency may see a muted reaction in comparison.
All eyes will be on the ECB today and market movement will be dictated by the outcome.
The Euro to Pound Sterling (EUR/GBP) exchange rate reached a high of 0.7741 during Thursday’s European session.
