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EUR GBP Stuck at Opening Levels after ECB Draghi’s Dovishness

European Central Bank (ECB) President Mario Draghi has told investors today that the Governing Council is not planning to reassess its loose monetary policy, keeping the Euro Pound exchange rate stuck at opening levels as Euro demand cools.

Suggesting low, or negative, interest rates and large scale asset purchases are here to stay, Draghi commented that ‘we have not yet seen sufficient evidence to materially alter our assessment of the inflation outlook – which remains conditional on a very substantial degree of monetary accommodation. Hence a reassessment of the current monetary policy stance is not warranted at this stage.

Later, ECB Chief Economist and executive board member Peter Praet stated that interest rates would not begin rising before the current programme of quantitative easing has finished; this is currently pegged for December this year, but the ECB is open to extending asset purchases beyond this date if it deems it necessary.

Praet explained; ‘in our expectation, the policy interest rate will remain at present or lower levels for an extended period of time and well past the horizon of our net asset purchases.

A run of largely worsening retail PMIs has further soured Euro appetite.

While the German index showed strengthening growth, the French PMI dropped into contraction territory and the Eurozone PMI showed an accelerating decline, with a score of 49.5.

Meanwhile, the Pound remains sluggish even though yesterday’s March services PMI from Markit revealed growth in the UK’s key economic sector had accelerated further-than-expected.

Instead of edging higher to 53.5, the index climbed to 55.0, which helped lift the composite index to 54.9 against expectations of a hold at 53.8.

While the data initially helped soften the blow of Monday’s worse-than-expected manufacturing PMI and Tuesday’s similarly disappointing construction index, analysts were quick to point out that the latest data didn’t change the fact the UK economy was likely to have slowed during the first quarter of the year.

The relative weakness of the PMI survey data compared to that seen at the turn of the year suggests the economy will have grown by 0.4% in the first quarter, markedly lower than the 0.7% expansion seen in the fourth quarter of last year,’ explained IHS Markit Chief Business Economist, Chris Williamson.

He additionally suggested that ‘the data add to the sense that, with economic and political uncertainty likely to intensify as the Brexit process gets underway, [Bank of England] policymakers are likely to continue to stress the need to look through any further upturn in inflation and focus instead on the need to keep policy on hold to support economic growth.

The fact the data hasn’t particularly altered the outlook for the UK economy is keeping the Pound soft today, with Sterling appetite further diminished by a lack of domestic data today.

EUR GBP could remain on a lacklustre trajectory for the remainder of the session.

The ECB’s Praet will make another public address today, followed by one from ECB Vice President Vitor Constancio, but Praet has already made his position clear on monetary policy today.

There is no UK data set for release, leaving traders to await tomorrow’s glut of production and trade data, as well as the National Institute for Economic and Social Research (NIESR) GDP estimate for March.

At the time of writing, the Euro Pound exchange rate traded around 0.85, while the Pound Euro exchange rate was trending in the region of 1.16.