Cautious ECB Comments Turn Common Currency (EUR) Bearish as Pound (GBP) Rises on Housing Price Data
Yesterday’s comments from European Central Bank (ECB) Executive Board Member Peter Praet, which suggested interest rates could potentially be loosened in the near future as a result of the current market turmoil, were quick to weigh down on the outlook and profitability of the Euro (EUR). With this morning’s Nationwide Housing Prices for August showing a slower than anticipated decline, at 3.2% rather than 3.1%, to boost the Pound (GBP), the EUR/GBP exchange rate currently remains in a downtrend at 0.7300.
Strong UK mortgage approvals have benefitted the Pound (GBP) this morning as European stock markets return to the red amidst further economic fears.
Rapid Recovery from Black Monday saw EUR/GBP Slipping as Profit-Taking Weakened the Common Currency
Yesterday was a generally less bleak day for the global economy as the majority of stock markets climbed to take back most of Black Monday’s losses. This was not an entirely positive outcome for the single currency (EUR), however, as the improvement in commodities and decrease in risk aversion saw investors moving away from the Euro in a round of profit taking. A surprising, but much appreciated, move in the afternoon from the People’s Bank of China (PBoC) to cut interest rates by 0.25% led to a greater surge in optimism that saw the EUR/GBP pairing slump to 0.7270.
Although they were mostly overshadowed by the unfolding stock situation, the German IFO surveys posted a distinct set of improvements on Tuesday. Both the Business Climate and Current Assessment figures jumped noticeably on the previous month’s result and forecasts, clocking in at 108.3 and 114.8 respectively. Of course, the fact that these were calculated prior to the global turmoil of the week rather reduced any potential impact.
Market Rally Faltering Today, Euro (EUR) Boost Limited as Pound (GBP) Rises on Mortgage Data
The global rally was not to last, however, as concern began to weigh down on the minds of investors again this morning. With the Dow Jones having lost steam towards the end of trading, sinking to cede back many of its earlier gains, the mood has been quick to swing towards pessimism. As the European stock markets opened down many traders appeared to reverse their positions yet again, buying back into the common currency to begin propelling the EUR/GBP exchange rate into another uptrend.
However, today’s UK BBA Loans for House Purchase came in with a positive result for the Pound (GBP), rising even more than expected on the previous month’s figure to reach 46,033. Demonstrating an increase in lending from the banks, and thus higher institutional faith in the state of the domestic economy, this prompted the EUR/GBP exchange rate to lose some ground as the appeal of Sterling rose.
EUR/GBP Exchange Rate Forecast: ECB Sentiment Could Prove Key Driving Force
More word from the European Central Bank (ECB) is due later today, with Executive Board Member Peter Praet set to speak in Mannheim after yesterday’s words from Vice President Vitor Constancio. It seems likely that Praet could adopt a similarly cautious tone with regards to the possibility of another loosening of interest rates in response to the current global situation and its near-term impact on the ECB’s target of pushing inflation back to 2%. Any dovishness runs the risk of further decreasing the attractiveness of the Euro, possibly forcing the EUR/GBP pairing into a greater downtrend.
Sterling will also be looking to produce a stronger rally on Friday’s UK Consumer Confidence Survey and GDP, hoping for more positive numbers to support its run of gains against the Euro.
Current EUR, GBP Exchange Rates
At time of writing the Euro to Pound Sterling (EUR/GBP) exchange rate remains in a bearish movement at 0.7318, while the Pound Sterling to Euro (GBP/EUR) pairing continues to climb in the range of 1.3665.