Euro Pound (EUR/GBP) Exchange Rate Falls as ECB Slashes Deposit Rate to All-Time Low
The Euro Pound Sterling (EUR/GBP) exchange rate slipped and the pairing is currently trading at around £0.8927.
On Thursday, the European Central Bank (ECB) cut its deposit rate by 10 basis points, bringing it down to an all-time low of -0.5%.
The single currency was volatile as the announcement of a bond purchase programme of €20 billion a month did not live up with the overall dovish market expectations.
Following this, ECB President Mario Draghi hinted that there were limits to monetary policy and called on governments to expand their budget spending.
However, Draghi is facing some backlash over the restarting of its quantitative easing (QE) package.
New Governor of Austria’s National Bank (OeNB), Robert Holzmann confirmed some of the bloc’s governors pushed back against the moves, and believes the plan could be a mistake.
He noted that some policymakers believe monetary policy has done as much as it could, and speaking to Bloomberg Holzmann said:
‘Essentially it was the question about how effective will a new monetary easing be.’
Euro (EUR) Slides as Ifo Predicts German Recession
In his last major announcement, Draghi noted that while the probability of a Eurozone recession had increased, this was still ‘a small probability’.
The threat to the bloc’s largest economy is a different story, and the ECB president said these predictions are ‘a case for timely and effective action on the fiscal policy side.’
Thursday also saw the Ifo institute cut its growth forecast for Germany and predicted the economy would shrink in the third quarter.
Both a no-deal Brexit and further escalation of US President Donald Trump’s tariffs are risks to the economy, and Ifo’s Timo Wollmershaeuser noted:
‘The outlook is weighed down by high uncertainties.’
The export-dependent German economy would then be plunged into a recession, but there could be a slight recovery in the final quarter.
However, the institute said it expects growth would pick up based on the assumption there will not be a no-deal Brexit or an escalation of Trump’s tariffs.
Pound (GBP) Rises as Bercow Promises ‘Creativity’ in Parliament
Sterling edged up against the Euro as no-deal Brexit fears continue to subside thanks to parliament’s move to block a hard Brexit on 31 October.
However, the Pound continues to remain vulnerable thanks to the uncertainty over the UK’s divorce from the European Union.
The Tory Prime Minister has said he would rather be ‘dead in a ditch’ than ask the EU for an extension to Article 50.
However, Sterling rose as House of Commons Speaker, John Bercow has promised ‘creativity’ in parliament if the Prime Minister ignores the law designed to stop a no-deal.
Euro Pound Outlook: Will Italian Inflation Buoy EUR?
Looking ahead to the start of next week it is likely Brexit will remain the main catalyst for movement of Sterling (GBP).
It is likely the Pound will be left under pressure as markets wait for further clarity on Brexit.
Meanwhile, the Euro (EUR) could edge up against the Pound following the release of Italian inflation data.
If August’s inflation rises higher than forecast, the Euro Pound (EUR/GBP) exchange rate could rally.