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Euro (EUR) Soars against the Pound (GBP) after Hawkish Mario Draghi Speech

The Euro has climbed today against the Pound on the back of a hawkish speech by the President of the European Central Bank, Mario Draghi.

Not only did Draghi express optimism that his bank’s policies would help restore inflationary pressure to the Eurozone, he also announced that the Eurozone needs a ‘considerable degree’ of stimulus. This suggests Draghi has become more upbeat about the strength of the Eurozone economy, as he has previously suggested that the Eurozone needs a ‘very substantial’ degree of stimulus.

Markets have therefore seized upon this slight change in language as a positive sign.

He stated:

‘Political winds are becoming tailwinds. There is a newfound confidence in the reform process, and newfound support for European cohesion, which could help unleash pent-up demand and investment.’

The Euro was propelled by this optimism for the future of the single currency, as well as by bets that the central bank could be moving towards a hawkish sentiment sooner than expected.

BoE Governor Mark Carney gives Dovish Speech

Bank of England Governor Mark Carney gave a much-anticipated speech today at the Financial Stability Report press conference. Though this speech did not pertain to any significant changes in rate hikes, we did learn that the BoE is pushing for the UK financial sector to be prepared for a downturn by encouraging banks to save an extra £11bn in capital. Sterling saw some losses against the Euro following, as traders reacted to the dovish speech, the Conservative DUP deal and the imminent Queen’s Speech vote.

EUR Gains against GBP Following Conservative DUP Deal Failing to Impress

After some two weeks of negotiations Theresa May was finally successful in striking a deal with the Democratic Unionist Party (DUP).

The deal controversially offers a £1 billion investment in Northern Ireland in exchange for ‘confidence and supply’ – a trade that gives May the necessary numbers in Parliament to pass her Queen’s Speech as well as new bills.

Whilst this did exercise some of the UK’s political uncertainty demons – even providing a brief rally early yesterday – many traders remain bearish and sceptical. It awaits to be seen what occurs on Thursday during the Queen’s Speech Vote and many investors are waiting for this to pass before they reassess the state of the UK’s political situation.

Theresa May’s EU Citizen’s Rights Proposal Shot Down

Meanwhile Brexit negotiations have begun. Theresa May offered a proposal regarding the rights of EU citizens within the UK, this proposal was however quickly shot down by EU chief negotiator Michel Barnier, who claimed that Britain needed ‘more ambition, clarity and guarantees’. Barnier, playing hard-ball, also asserted that the UK should provide EU citizens within its borders the same protection that the EU provides.

May’s offer itself represents a positive move forward in the process of amicable negotiations, but there are many traders that regard May’s position as PM as too insecure. Many are anxious that she could face a contest for leadership from within her own party – something that could temporarily hurt Sterling and slow negotiations.

Key Takeaways

  • The Euro has been propelled by an optimistic, hawkish speech by European Central Bank President Mario Draghi.
  • Sterling has been somewhat bearish – stumbling in its rally primarily as a result of the Conservative-DUP deal failing to impress and Bank of England Governor Mark Carney’s dovish speech.

Current EURGBP Interbank Exchange Rates

At the time of writing, the Euro Pound (EUR GBP) exchange rate is trading at 0.8844. Conversely the Pound Euro (GBP EUR) exchange rate is trading at 1.1301