The Euro to Pound (EUR/GBP) exchange rate fell more than 1% on Friday after European Central Bank President Mario Draghi warned that inflation expectations in the region are falling to excessively low levels and hinted that the bank could introduce more monetary easing measures.
Draghi’s speech sent a strong signal to economists that the ECB is ready to increase and expand its asset-purchasing programme if inflation continues to be dangerously low and remain far off from the ECB’s target level of 2%.
‘We will continue to meet our responsibility, we will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us. If on its current trajectory our policy is not effective enough to achieve this, or further risks to the inflation outlook materialize, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases,’ said Draghi.
The Euro dropped as economists raised their bets that the ECB is edging closer to introducing quantitative easing measures. Draghi has warned over lower inflation before but today the ECB president increased his urgency in getting inflation higher.
“It is essential to bring back inflation to target and without delay. Monetary policy can and will do its part to achieve this,” he said, adding that other policies outside the central bank’s responsibilities such as fiscal policy are needed to boost demand.
The Pound also received some support after data showed that the UK’s public finances improved last month. According to the Office for National Statistics, UK public sector net borrowing, excluding state controlled banks, came in at £7.706 billion, a drop of 2.4% from the preceding year. Economists had been forecasting for a figure of £7.9 billion.
Despite the fall in borrowing the UK’s budget deficit remains higher and indicates that chancellor George Osborne is failing to get spending under control.
Next week the Euro could fall further against the Pound and other major peers as market attention will be focused on next Tuesday’s German GDP growth and retail sales data. UK GDP data is due for publication on Wednesday. If the two sets of figure show that, the Eurozone’s largest economy and the UK are seeing divergence in their growth rates the Euro will likely fall sharply against Sterling.
Euro Exchange Rate News:
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,
,US Dollar,1.2434 ,
Euro,,British Pound,0.7945 ,
Euro,,Australian Dollar,1.4403 ,
Euro,,Canadian Dollar,1.4076 ,
[/table]
