- Markets Expect December ECB Rate Cut – 0.1% cut predicted
- Pound Recovers on Strong Labour Data – Unemployment highest since 2005
- George Osborne Splits Tory Party – Infighting after publication of post-‘Brexit’ budget
- EUR/GBP Forecast: Central Banks Dominate – ECB bulletin and BoE rate decision
Pound Gains on BoE Meeting Minutes
The Euro Pound exchange rate shed 0.3%, falling to 0.7898, following the publication of the BoE’s policy meeting minutes.
The minutes detailed the potential negative repercussions of a ‘Brexit’ on the UK economy and were subsequently viewed as lending support to the ‘Remain’ campaign.
However, as Thursday’s European session progressed the EUR GBP exchange rate recovered some of its losses to trend narrowly, even amid concerns that weak bond yields will cause the ECB’s quantitative easing programme to have a muted impact.
(Previously updated 13:21 16/06/2016)
EUR GBP Unmoved after UK Retail Sales Data
The EUR GBP exchange rate was left trending around the day’s opening levels despite the UK publishing better-than-forecast retail sales figures.
Although the Eurozone’s month-on-month CPI was positively revised from previous estimates, the Euro failed to derive much benefit.
(Previously updated 08:00 16/06/2016)
Market anticipation clashed with previous comments by Mario Draghi on interest rates yesterday, weakening the EUR/GBP exchange rate.
The Euro Pound currency pair also slumped as GBP was supported by surprisingly upbeat UK employment figures. A declining unemployment rate and impressive average earnings figures lent the British currency a measure of support despite ongoing Brexit concerns.
Euro Slumps on Rising Market Expectations of Further Eurozone Interest Rate Cuts
‘Brexit’ fears had a profound impact upon Eurozone outlook yesterday, even though the Pound itself was recovering following two days of referendum-inspired declines. Trading suggested that risks to Eurozone monetary policy are to the downside, with inflation expectations dropping as well.
Forward Eonia lending rates – market predictions of the Euro OverNight Index Average, or interbank interest rate for a one day period – dropped further into negative territory yesterday. The drop in rates to -0.41% for the period covering the European Central Bank’s (ECB) December meeting shows that markets are anticipating further negative rates as a result of a Governing Council gathering before this point.
The figures suggest that there is an 80% chance that the ECB will have cut the deposit rate by -0.1%, with forward rates also pointing to a 50-50 chance of a cut by September and a 30% chance of lower rates by July.
According to Rainer Guntermann, Commerzbank Rates Strategist: ‘The prospect of Brexit is adding to macroeconomic concerns … and many investors are now looking for further easing from the ECB.’
Pound Recovers on Strong Labour Data even as Osborne Budget Splits Tories
UK unemployment reached its lowest level since 2005 in May, according to the latest official figures. The ILO unemployment rate unexpectedly dropped from 5.1% to 5%, with the number of people making jobless claims dropping by -0.4k rather than showing no change as predicted. Meanwhile, average weekly earnings held steady at 2% despite predictions of a drop to 1.7% during the three months to April.
Elsewhere, George Osborne caused significant ire – even among other ‘Remain’ supporters – after releasing projections for a post-‘Brexit’ budget which would include £30 billion worth of tax hikes and austerity measures in order to fill the ‘black hole’ he claimed would be created by leaving the EU.
The idea of further austerity was lambasted by the Labour party, who vowed to vote against the measures in Parliament, with Shadow Chancellor John McDonnell claiming:
‘This maybe a natural Tory approach but no Labour chancellor would respond to an economic shock in this manner. And neither did Alistair Darling in 2008. Any credible economist would tell you that raising taxes or cutting spending or both in response to an economic shock is the wrong thing to do.
It’s deeply worryingly that this suggests the current Tory chancellor thinks this is a sensible response. But it highlights what is on offer under a Tory Brexit as George Osborne is only saying what those Tories campaigning for a Tory Brexit truly believe deep down.’
57 Tory MPs signed an open letter expressing their intentions to vote to block the bill should a ‘Brexit’ occur, calling George Osborne’s figures an attempt to scare UK voters into remaining in the EU. However during the last Prime Minister’s Questions before the vote, Labour leader Jeremy Corbyn highlight the apparent hypocrisy of the ministers after asking Cameron:
‘Will you take this opportunity to condemn the opportunism of 57 of your colleagues who are pro-Leave – these are members who backed the bedroom tax, backed cutting disability benefits and slashing care for the elderly – who suddenly have now had a Damascene conversion to the anti-austerity movement?’
Euro Pound (GBP/EUR) Exchange Rate Forecast: ECB and BoE in Focus Unless ‘Brexit’ Arguments Resurface
The European Central Bank is set to release its Economic Bulletin today, which traders will likely read with interest. Eurozone inflation data for May is also due for publication during the European session and is expected to show continued year-on-year deflation, although on the month prices are predicted to grow 0.3% after stagnating previously.
The latest interest rate decision from the Bank of England (BoE) is considered set in stone by markets. Even without the referendum vote just around the corner, low inflation and other signs of economic weakness are likely to stay the BoE’s hand for some time to come.
The Euro Pound (EUR/GBP) exchange rate was trending in the region of 0.7919, while the Pound Euro (GBP/EUR) exchange rate traded around 1.2628 towards the end of the European session yesterday.