Euro to Pound Exchange Rate Climbs as European Central Bank (ECB) Avoids Dovish Signals
The European Central Bank (ECB) didn’t show any fresh dovish signals during its October policy decision on Thursday, offering some relief to the Euro (EUR) after a volatile week and helping the Euro to Pound Sterling (EUR/GBP) exchange rate to advance.
Since opening this week at the level of 0.8816, EUR/GBP has spent most of the week climbing despite political and economic news weighing on the Euro. This has been due to broad Pound (GBP) weakness.
The Euro benefitted a little more solidly from the Pound’s weakness on Thursday as investors digested a relieving consistency in tone from the European Central Bank. EUR/GBP currently trends near a 3-week-high of 0.8862.
The ECB left Eurozone monetary policy frozen as was widely expected, but notably the bank did not express any major concern over issues like a potential US trade war, or Italian politics.
Euro (EUR) Exchange Rates Edge Higher on Relieving Tone from European Central Bank (ECB)
Markets had been increasingly anxious in recent sessions that the European Central Bank (ECB) could be pressured to take a more dovish stance on monetary policy, due to political and economic developments in the Eurozone.
Investors have been concerned about tensions between Italy and the EU, since the EU rejected Italy’s budget proposal earlier in the week.
On top of this, Markit’s October PMI projections for the Eurozone fell short and indicated that fears about US protectionism are weighing heavily on Eurozone economic activity.
Demand for the Euro improved a little following the ECB’s decision, in which the bank showed no signs that its policy outlook had been negatively influenced by any of these developments.
The ECB continued to state it would unwind its quantitative easing (QE) program before the end of 2018.
During a press conference, ECB President Mario Draghi warned that uncertainties like trade and Italy’s budget were clouding the outlook, but he remained confident.
Notably, Draghi expressed confidence that Italy and the EU would reach an agreement on the issue of Italy’s budget, and said there was no sign of contagion from Italy spreading to other nations.
Pound (GBP) Exchange Rates Unappealing amid Persistent Brexit Fears
The Pound continued to face pressure from broad Brexit uncertainties, which have been the primary cause of the British currency’s movement this week.
While UK Prime Minister Theresa May appears to be unlikely to face a leadership challenge just yet, there are still major concerns that the UK and EU will be unable to reach a Brexit deal in time.
Not only that, but a potential agreed Brexit deal could still be blocked by Conservative Party rebels and opposition parties before it can enter UK law.
The UK government has also planned to begin preparing for a worst-case scenario ‘no-deal Brexit’ if there is no deal reached by the second week of November.
While many analysts still believe some kind of deal will be reached, the possibility that a ‘no-deal Brexit’ could be reality is making the Pound very unappealing.
During the European Central Bank (ECB) decision today, ECB President Mario Draghi also commented on the possibility of a worst-case scenario Brexit:
‘If this lack of a solution continues, and approaches the end date, the private sector itself will have to prepare on the assumption that it will be a hard Brexit.
That’s where there will be financial uneasiness in markets.’
Euro to Pound (EUR/GBP) Exchange Rate Investors Anticipate German and French Confidence Stats
Most of this week’s most notable Eurozone news has passed, and with the European Central Bank (ECB) decision over the Euro to Pound (EUR/GBP) exchange rate is unlikely to see any further major movements before markets close for the week.
The ECB seemed more or less unperturbed by the latest Eurozone growth data. While the Euro could be influenced by Friday’s German and French consumer confidence stats, these are unlikely to weaken the shared currency much unless they are significantly disappointing.
The Euro is more likely to be influenced by another speech from ECB President Mario Draghi set for Friday afternoon. If Draghi is more cautious tomorrow than he was in today’s press conference, the Euro could see some late-week losses.
Failing that though, the Euro to Pound exchange rate is on track to end the week near its best levels since early-October. The Pound’s weakness is likely to persist, too.
However, if Eurozone inflation or growth data disappoints next week, or if the UK and EU finally reach a major agreement on the issue of Ireland’s border or the overall Brexit deal, the Euro to Pound (EUR/GBP) exchange rate could fall in the coming week.