- Euro Pound Exchange Rate Falls on Rallying Sterling – Abating UK political instability sees the Pound gain.
- Eurogroup Meeting Attempts to Quash Economic Concerns – Meeting of Eurozone’s finance ministers downplays Supposed Italian Banking Crisis.
- Third of Prospective Corporate Bonds Now Undesirable for European Central Bank (ECB) – Slipping yields make EU corporate bonds ineligible for ECB purchase.
- EUR/GBP Forecast: Pairing Likely to Fall on Thursday BoE Rate Cut
The Euro Pound exchange rate briefly saw a high of 0.8572 during yesterday’s session before rebounding due to newfound Sterling confidence now that Theresa May is set to be Prime Minister.
The Euro has seen a fair amount of appreciation in reaction to the Eurogroup’s (an informal collection of Eurozone finance ministers) deliberations yesterday, with investors shifting towards short bets on the currency and risk-correlated currency demand lessening.
However, Pound gains may prove to be short-lived with the Bank of England (BoE) getting ready to gut Sterling value further.
Analysts believe the BoE has plans to cut its benchmark rate on Thursday. The interest rate currently stands at a record low of 0.5% but could be taken to 0.25% or even 0% on Thursday.
The Euro Pound exchange rate currently trades at 0.8532 after failing to hold onto its late-morning gains during yesterday’s session.
Euro Performance Mixed as Risk-Aversion Remains High
The common currency made acceptable gains over yesterday’s session, especially against risky, commodity correlated currencies such as the ‘Aussie’ and Canadian Dollar.
This began with investors shifting positions in expectation of future devaluation of the Euro. Net short exposure for the currency shot through the roof and as a result the Euro saw notable gains. The currency’s advance was supported by bolstering Eurostocks.
However, the remaining However, safe-haven demand has seen Eurobond yields drop enough that now over a third are unsuitable for the ECB’s purchasing scheme, firmly placing a spanner in the works of the central bank’s attempts to stabilise the Eurozone economy.
The Eurogroup met yesterday and the group downplayed the threat of the Italian bank crisis, amongst other European issues. These comments are in stark contrast to those uttered by Deutsche Bank’s David Folkerts-Landau ,who called for a €150 billion bailout for the struggling Eurobanks and claimed Europe was ‘ill’ and policymakers would have to act fast to avoid an ‘accident’.
Sterling (GBP) Rallies Significantly on News that Theresa May is new Prime Minister
The Pound has struggled since last week’s series of unfortunate economic events. The BoE stability report began the slide and the commercial property sector freezes kept the currency sliding south.
The Pound enjoyed a brief respite towards the end of yesterday’s session thanks to the political landscape in the UK settling somewhat. Immediately following Andrea Leadsom’s announcement that she would bow out of the leadership race and concede to Theresa May, the Pound jumped, gaining further as the day went on and David Cameron stated that May would be in office by Wednesday evening. Cameron praised May and attempted to increase support for the nation’s future leader.
Euro Pound Exchange Rate Looks to Slide as BoE Looks to Cut Rates on Thursday
The only event worth talking about for the Pound this week is Thursday’s BoE rate decision, which holds massive potential for Sterling movement. A cut to 0.25% would see the Pound drop considerably while a reduction to 0% would see the currency slide drastically.
Further Sterling movement could be caused by the announcement of the BoE’s quantitative easing targets if it was to adjust them.
There is a fair amount of somewhat impactful data coming out of the Eurozone this week.
Eurozone industrial production is set for Wednesday morning and is forecast to fall by -0.7%. The data comes from the pre-Brexit period and as a result next month’s print will be the one to watch.
The rest of Europe’s impactful ecostats are set for release on Friday, with a European Central Bank (ECB) survey of economic forecasters and Eurozone inflation figures to be published. The sentiment set forth by forecasters could see notable movement in the Euro Pound exchange rate and any large changes to inflation would likely move the currency also.