Update: ECB’s Move to Drop Easing Bias Propels EUR/GBP Higher
The Euro Pound (EUR/GBP) Exchange Rate is trending higher this afternoon as investors welcomed the ECB’s first steps towards tightening monetary policy.
While leaving interest rates on hold this month as expected, the ECB’s decision to drop its easing bias from its latest policy statement has been felt across currency markets.
The removal of the bank’s stipulation that it could increase its bond purchases again in the future suggests that policymakers are increasing optimistic in their outlook for the coming year.
The move towards normalising monetary policy was well received by investors and has propelled the Euro Pound exchange rate up by around 0.3%.
Original article follows below:
EUR/GBP Exchange Rate Shows Limited Movement in Anticipation of ECB Meeting
The Euro Pound (EUR/GBP) exchange rate is trading in a narrow range this morning ahead of the European Central Bank’s (ECB) latest rate decision later today.
At the time of writing EUR/GBP is holding close to this morning’s opening levels, as markets eye the ECB’s policy meeting later today.
Euro (EUR) Subdued as German Factory Orders Slump to One-Year Low
Ahead of the ECB this afternoon the Euro remains muted this morning following the release of Germany’s latest factory orders data, as figures show they fell far faster than expected last month.
According to Germany’s Federal statistics agency, Destatis factory order declined -3.9% in January, down from 3% growth in December and falling well below expectations of a more modest contraction of -1.9%.
This was the steepest drop in orders in a year and was largely driven lower by a fall in both foreign demand and domestic orders, with analysts branding it as ‘a horrible start to the new year’.
However with the fundamentals supporting Germany’s industrial sector appearing to remain in good standing, economists suggest that orders will likely rebound in the coming months.
Pound (GBP) Holding Steady after Recovery from Three-Month Low on Brexit Concerns
Sterling sentiment tumbled yesterday afternoon before rebounding as markets reacted to the release of the EU draft guidelines for the second stage of Brexit negotiations.
The guidelines suggest that the red lines drawn by the UK government will mean that any trade deal will be limited, while also rejecting the notion that the UK would be able to ‘cherry-pick’ parts of the single market.
Ken Odeluga, market analyst at City Index said;
‘We are still looking at a vast divide between what Britain wants and where the EU expects the UK to be.’
The second stage of talks are set to begin towards the end of March following a summit of EU leaders in which they will vote on the guidelines published on Wednesday.
EUR/GBP Forecast: ECB Rate Decision in Focus
Looking ahead movement in the EUR/GBP exchange rate later today is likely to be dominated by the market reaction to the ECB latest policy meeting.
While the ECB is not expected to make any changes to its monetary policy following this month’s meeting, markets are hoping that the bank will strike a more hawkish tone in its outlook for 2018.
Current speculation mostly centres around the possibility of the ECB drop its easing bias from its accompanying statement – removing the stipulation that it could increase its bond purchases again in the future.
However analysts suggest that policymakers are likely to remain cautious and may avoid making any hints towards ending its stimulus programme in order to avoid spooking markets.
Meanwhile the Pound may attempt to push higher at the end of this week’s session with the publication of the UK’s latest trade figures.
Economists forecast that the UK’s trade deficit will have narrowed sharply in January, falling to -£3.8bn, down from -£4.8bn at the end of last year, possible strengthening Sterling.