- Euro Pound Exchange Rate Sees Muted Deprecation due to Euro Strength – While the Pound rallies across the board, gains against the common currency are limited.
- European Central Bank May Elect to Hold Rates at Next Month’s Policy Meeting – Large group of analysts agree the central bank could benefit from a wait-and-see approach.
- Pound Rallies on ARM Takeover, Martin Weale’s Calls to Hold Rates – SoftBank’s confirmed takeover saw ARM Holdings stock surge 40%.
- UPDATE: Euro Pound Exchange Rate Recovers on Tuesday
Euro Pound Exchange Rate up 0.6% Today
After sliding on Monday the Euro Pound exchange rate reversed losses to gain 0.6% on Tuesday and trade in the region of 0.8395.
The expectation that the International Monetary Fund (IMF) would cut the UK’s growth forecast in response to the Brexit vote piled pressure on the Pound and sent the British currency sliding across the board.
The Euro was able to retain gains despite some dramatic declines in the ZEW economic sentiment surveys for Germany and the Eurozone as a whole.
(Previously updated 11:30 19/07/2016)
The Euro Pound exchange rate spent most of Monday’s session depreciating due to the Pound’s rally but the Euro’s gains have been somewhat capped in reaction to the European Central Bank’s latest hinting at its intention to defer on policy changes until more concrete post-Brexit data has been released.
Previously, sustained uncertainty within the Eurozone was keeping the common currency out of investor’s favour as the June 23rd UK referendum on EU membership unleashed a wave of political and economic uncertainly that engulfed the entire union.
Before the end of Monday’s session, the Euro Pound exchange rate was trading at 0.8350 after seeing minor fluctuations over the day.
Euro’s Losses Capped on Analyst Expectations of ECB Holding Rates at Next Policy Meeting
Economists surveyed by Bloomberg have moved to predict that European Central Bank (ECB) President Mario Draghi will elect to leave rates on hold at this week’s policy announcement.
This change in direction follows the Bank of England’s (BoE) decision last week to hold its benchmark rate at the historically low 0.50% while it waits for more digestible data coming from the post-Brexit period. Now it appears that the ECB will be doing the same, or so some analysts have agreed.
Previously, ECB head Mario Draghi had quelled market unrest through making sure the banks have enough liquidity at arm’s reach following the June 23rd referendum. This did have some effect as it prevented a situation where banks lack the capital to offer loans to businesses feeling the post-Brexit squeeze, somewhat cooling fears.
However, the ECB is running out of weapons in its monetary arsenal and this is what had led some analyst to posit that the central bank may elect to hold fire on any major policy changes until the hard data is released. Draghi is likely to once again call on governments and central banks to align policy and regulation to better enable growth.
Philippe de Gudin, chief Euro economist at Barclay’s Bank, Paris, eluded to more needing to be done outside the ECB in comments made recently:
‘The ECB is close to its limit… As the economy slows as a result of the impact of Brexit on the credibility of the European project, we think other policies will eventually need to be used, such as fiscal policy where it is possible and a deepening of euro-area integration.’
The Euro continues to experience downward pressure from the ongoing issues within the Italian banking sector.
Sterling (GBP) Finds Support as Japanese Firm SoftBank Confirms ARM Holdings Buyout
The Pound has started to find favour once again this week as Bank of England (BoE) Monetary Policy Committee member Martin Weale spoke yesterday about the need for the central bank to continue its wait-and-see approach in regards to post-Brexit monetary loosening and Japanese corporation SoftBank’s confirmed planned takeover of the UK’s illustrious ARM processor and software designers.
The Pound rallied on the news that the UK’s best hope of being a global technological giant was to be sold to the Japanese telecommunications and internet behemoth SoftBank.
However, Softbank have announced a vow to double the UK chip-designer’s workforce while ARM itself will continue to operate on its partnership-based business model that is incredibly lucrative for the company while keeping overheads down as ARM do not actually manufacture a large amount of chips themselves.
Headquarters are to remain in Cambridge after the £24 billion acquisition as the Japanese multinational corporation has deemed it the right time to invest in such a business with the ‘internet of things’ becoming more and more prevalent.
The ‘internet of things’ refers to the ever increasing level of connectedness we experience with objects around us thanks to the internet, such as smart fridges, smart televisions and even internet connected home heating systems. All these products require microchips to function and nine-times-out-of-ten they include an ARM processor.
Analysts hailed this move as a sign that investors have not been deterred from the UK economy post-Brexit as this represents a fresh influx of cash for the country. However, it remains to be seen how much the £24 billion buyout will reinforce the UK’s economic conditions, rather than shareholders wallets.
Euro Pound Exchange Rate Movement Forecast to Follow Inflation, Sentiment Data
The only group of notable ecostats for the UK is due for release at 9.30am this morning.
The comprehensive basket of inflation data is expected to show a marginal increase with the collated data forecast to show a 0.1% increase in the core figure. While this release only concerns the June period, it is expected that inflation will begin to show some form of increase as Sterling’s weakness will drive up UK imports.
However, with the Bank of England (BoE) eyeing up possible monetary policy loosening in the next couple of months, a favourable inflation print is unlikely to get the BoE to consider hiking rates.
The German ZEW economic sentiment survey is pegged for release later this morning.
This monthly survey of European financial experts sheds light on the current outlook for the economic situation in Germany. If the majority of participants paint a gloomy picture for the German economy’s future, the Euro could quite easily see a notable decline against the majors.
The ZEW Eurozone survey, out at the same time, would likely have the same effect.
With the possibility of the Pound’s latest rally being rather transient, there is a fair chance the Euro Pound exchange rate could experience some increases in value in coming days.