Euro Pound (EUR/GBP) Exchange Rate Rises despite a Dovish Draghi Makes Way for Lagarde
UPDATE: The Euro Pound (EUR/GBP) exchange rate rose this afternoon following the European Central Bank’s (ECB) interest rate decision, leaving the pairing trading at around £0.8647.
While the ECB left interest rates unchanged, outgoing President Mario Draghi offered a downbeat assessment of the Eurozone in his last press conference.
During his final press conference, Mario Draghi stated:
‘The risks surrounding the Euro area growth outlook remain on the downside.
‘In particular, these risks pertain to the prolonged presence of uncertainties related to geopolitical factors, rising protectionism, and vulnerabilities in emerging markets.’
As data suggested that German is likely in a recession and manufacturing weakness has spread to the labour market, Draghi noted:
‘Everything that’s happened since our monetary policy decisions has shown abundantly that the Governing Council’s determination to act in a substantive manner was justified.’
Economists do not expect an interest rate hike from the bank before late 2022, with new ECB President Christine Lagarde set to inherit the bank’s expansionist stance along with the divisions between policymakers.
Despite a downbeat Draghi, the single currency was able to edge up against Sterling as Brexit weighed on the UK currency.
Euro Pound (EUR/GBP) Exchange Rate Muted as PM Awaits EU Delay Decision
The Euro Pound (EUR/GBP) exchange rate was left flat this morning, and the pairing is currently trading at around £0.8626.
Sterling was left under pressure on Thursday as Downing Street dismissed reports that the government is split over how to move forward with the Brexit process.
Earlier in the week MPs voted in favour of Boris Johnson’s Brexit Withdrawal Agreement Bill, but voted against fast-tracking the bill through parliament forcing the Prime Minister to request an extension from the European Union.
However, the Pound was left under pressure as reports revealed the French President Emmanuel Macron is said to want a deadline of no more than 15 days.
Despite Macron’s view that a delay of this length would be sufficient, many EU member states believe this would be too short with German Chancellor Angela Merkel is said to believe a three-month delay is a better length.
A three month delay could cause further disruption for Sterling, as the Prime Minister announced he would push for a general election if the bloc offered a delay of this length.
Euro (EUR) Flat as German Downturn Continues
On Thursday, flash data from the Eurozone revealed that the downturn in the German economy continued as employment in the bloc’s largest fell for the first time in six years.
October’s flash German PMI composite was little changed from last month’s near seven-year low, and remained firmly in contraction territory registering at 48.6, which likely weighed on the Euro leaving the pairing muted.
Employment within the private sector fell for the first time in six years, with job losses largely centred on manufacturing which saw numbers fall by the greatest extent in close to a decade.
Commenting on this morning’s flash data, Markit’s Principal Economist, Phil Smith said:
‘Hopes of a return to growth in Germany in the final quarter have been somewhat dashed by the October flash PMI numbers, which show business activity in the Eurozone’s largest economy contracting further and underlying demand continuing to soften.
‘Perhaps most concerning are the signs of increasing strain on the domestic economy, with growth of service sector activity slowing to the weakest since September 2016 and employment now in decline for the first time in six years.’
Euro Pound Outlook: Will a Dovish Draghi Weigh on EUR?
Looking ahead to this afternoon, the Euro is likely to remain under pressure ahead of outgoing European Central Bank (ECB) President Mario Draghi’s final monetary policy meeting before Christine Lagarde takes over.
While no major monetary policy announcements are expected, if the current divisions between policymakers are highlighted, it could weigh on the single currency as the unprecedented split between ECB board members could threaten the effectiveness of monetary policy.
Meanwhile, Brexit is likely to remain one of the main catalysts for the Pound Euro (GBP/EUR) exchange rate over the course of the week.
If the European Union offer a three-month delay, the UK currency could be offered a slight upswing of support in the short term, but further Brexit uncertainty could leave the Pound on the back foot.