Update: The Euro is up 0.4% against the Pound and 0.3% against the US Dollar after the latest inflation data printed above forecast. Overall consumer price growth accelerated from 1.5% to 1.9% – ten basis points above-forecast – while core price growth performed even better thanks to an upwards revision to March’s figures; growth ticked up from 0.8% to 1.2%.
Euro gains against the Pound are limited, despite today’s GDP figures covering the first quarter of 2017 clocking in below forecast, showing an even-sharper-than-expected slowdown from 0.7% to 0.3% on the quarter. Sterling is largely advancing, except against the Euro.
Euro gains against the US Dollar have edged back this afternoon, despite poor GDP figures from the US. First-quarter GDP slowed from 2.1% to 0.7% against expectations of a fall to 1%, but economists claim this is largely down to the unseasonably warm winter driving down energy demand.
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The approach of the latest European Central Bank (ECB) monetary policy decisions is keeping EUR GBP on the downtrend today, although EUR USD has been able to register minor gains thanks to investor disappointment in President Donald Trump’s long-awaited US tax reform plans.
EUR GBP has fallen -0.3% to 0.84, while EUR USD has been able to edge up from opening levels to above 1.09 ahead of today’s key ECB announcement.
The Governing Council is expected to make no changes to monetary policy, although a previously-agreed reduction in the level of quantitative easing, now that the programme is being extended past the end date of March, from €80 billion per month to €60 billion per month, is due to take effect.
It seems likely, given that this is happening, that the Governing Council may discuss quantitative easing further; something they usually do not do – much to the disappointment of markets.
While ECB President Mario Draghi may remain dovish, telling investors recently that there would be no changes to monetary policy any time soon, other Governing Council members are becoming more hawkish.
Sabine Lautenschläger commented recently that the markets should be prepared for a ‘change’ in ECB policy, so investors will be watching to see whether the hawks on the board are starting to become more dominant.
Jens Weidmann said at the beginning of April that; ‘Given the prospect of a protracted, robust economic recovery in the Euro area and an increase in price pressure, the discussion is also legitimate on when the Governing Council should consider monetary policy normalisation and how it could adjust its communication accordingly.’
Investors therefore remain reluctant to position themselves on the Euro until the outcome of today’s policy meeting is known, which has largely put the common currency on the decline.
EUR GBP is facing additional selling pressure thanks to a recovery in the Pound today, with Sterling continuing to recover after hitting a 2-week low of 1.17 yesterday.
With strong expectations remaining that the Conservative Party will secure a strong majority in the upcoming general election, the outlook for the Pound remains positive and so investors were unwilling to ignore it while it was at a fortnightly low for long.
Meanwhile, the US Dollar is largely on the decline after the much-anticipated tax plan from President Donald Trump proved thin on details.
Experts have criticised the 200-word document, presented as bullet points on a single side of A4, for lacking detail, with no information provided on how the government would compensate for the huge loss of income created by markedly smaller tax receipts.
The lack of detail leaves investors with many questions, primarily regarding how it will pay for itself and whether it will even be passed by Congress – where many senators on both sides are against increasing the government deficit any further.
Connor Campbell of SpreadEx observed;
‘When pressed for more information, specifically if these reforms would be revenue neutral, the pair [Treasury Secretary Steven Mnuchin and National Economic Council director Gary Cohn] came up short, producing some Trumped up rhetoric about how it would pay for itself through ‘growth, reduction of deductions and closing loopholes’ and that the administration had a ‘once in-a-generation opportunity to do something really big.’
Even if those questions can be answered, the absence of an in-depth, workable plan means that tax reforms will still be a long way away, making it hard for investors to price the potential economic benefits into USD with any certainty.
The Euro’s position could alter during the remainder of the trade session, given the high-profile Eurozone and US data, as well as releases from the UK that investors will pay close attention to.
As well as the ECB policy update, German consumer price index figures for April will be released and are expected to show an uptick on the year, but a minor -0.1% decline on the month.
Data from the Confederation of British Industry (CBI) today could knock trader confidence in the Pound; both retailing reported sales and total distributive reported sales indices are expected to weaken.
Meanwhile, the US will release the advance goods trade balance and durable goods orders figures for March; however, given that investors are still gripped by disappointment over Trump’s insubstantial tax reform plan, these figures may well be ignored today.