Euro to Pound Sterling (EUR/GBP) Exchange Rate Slumps to 0.7574
As the stimulus package unveiled by the ECB on Thursday exceeded expectations in terms of size and duration, it had an immediate and dramatic impact on the Euro.
The common currency posted extensive declines against all but one of its currency counterparts, losing more than 1% against the Pound, US Dollar and Australian Dollar.
The ECB intends to spend 60 billion Euros per month on asset purchases every month until September 2016 – making the programme worth more than 1 trillion Euros.
In the wake of the announcement the Euro to Pound Sterling (EUR/GBP) exchange rate dropped to a new seven-year low while the Euro to US Dollar (EUR/USD) exchange rate fell beyond an 11-year low.
EUR/GBP Exchange Rate Weakens
The Euro was trading in a softer position against the Pound and was approaching an 11-year low against the US Dollar ahead of the European Central Bank (ECB) policy announcement.
A large QE programme would see the common currency extend losses, while a disappointing one could help the Euro recoup recent declines.
The Euro to Pound Sterling (EUR/GBP) exchange rate was trading in the region of 0.7656
The Euro to US Dollar (EUR/USD) exchange rate was trading in the region of 1.1626
EUR/GBP Exchange Rate Rallies After UK Reports
Over the course of Wednesday’s European session, the Euro to Pound Sterling (EUR/GBP) exchange rate climbed by almost 0.4% as investors digested the minutes from the latest Bank of England (BoE) policy meeting and the UK’s employment figures.
Although the employment figures were solid, the minutes showed that policymakers were once again united in the belief that interest rates should stay at record lows for the foreseeable future.
This indication that the BoE is nowhere near increasing interest rates saw the Pound post widespread declines.
According to the Financial Times; ‘The committee largely attributed this drop [in inflation] to the decline in oil prices, which the BoE thought could help the UK economy in the medium-term by boosting real incomes and lowering production costs. The MPC was concerned, however, that the current bout of low inflation might become persistent if it damped inflation expectations.’
The Euro to Pound Sterling (EUR/GBP) exchange rate advanced to a high of 0.7681 before a downward correction saw it trading in the region of 0.7648
EUR/GBP Exchange Rate Remains Trending Lower
Although the Euro to US Dollar (EUR/USD) exchange rate recovered a little ground following the publication of impressive ZEW economic sentiment surveys for Germany and the Eurozone, the Euro to Pound Sterling (EUR/GBP) extended its 0.3% decline to 0.6% as trading progressed.
The ZEW sentiment measures for the currency bloc and its largest economy both showed improvement, with the German index achieving an 11-month high.
According to ZEW President Clemens Fuest; ‘The new year started with turmoil in the capital markets. News of the upcoming parliamentary elections in Greece and the Swiss National Bank’s decision to abandon the Euro cap on the Franc’s value have led to strong stock market fluctuations. However, this seems not to have impressed ZEW’s financial market experts with regard to their expectations for the German economy. Instead, decreasing crude oil prices and a depreciating Euro have contributed to a further gain of the indicator.’
The Euro to Pound Sterling (EUR/GBP) exchange rate is trading in the region of 0.7633
After registering an almost one-cent daily gain on Monday, the Euro to Pound Sterling (EUR/GBP) exchange rate lost 0.3% on Tuesday before the publication of the Eurozone’s sentiment stats.
EUR/GBP Exchange Rate Falls as German PPI Declines
The Euro to Pound Sterling (EUR/GBP) exchange rate fell to 0.7659 during the European session as Germany’s Producer Price Index fell short.
Although concerns that the European Central Bank (ECB) won’t take the action necessary to support the Eurozone when it gathers on Thursday undermined demand for the Euro slightly at the beginning of the week, bets that the common currency’s decline was excessive gave it a modest boost at the beginning of the week.
The Euro to Pound Sterling (EUR/GBP) exchange rate hit a low of 0.7655
However, with yet another domestic ecostat falling short of forecasts, the Euro was unable to hold on to its advance.
German Producer Prices were expected to slide by -0.4% on the month and 1.4% on the year in December.
However, they actually fell by -0.7% on a month-on-month basis and 1.7% year-on-year, with the annual figure being a four-year low.
The worsening in producer price inflation adds fuel to the quantitative easing fire and nothing short of an aggressive-full scale bond buying programme is likely to satisfy investors.
The Euro to Pound Sterling (EUR/GBP) exchange rate achieved a high of 0.7694
Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast: Euro Could Gain if Sentiment Improves
Although the Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in a softer position, the common currency could recover losses if today’s ZEW economic sentiment survey for the Eurozone shows improvement.
The gauge came in at 31.8 in December.
The German measure of economic confidence is expected to rally from 34.9 to 40 – a result which would be Euro supportive.
That being said, demand for the Euro may continue to be limited ahead of Thursday’s ECB announcement.
On Tuesday the Euro to US Dollar (EUR/USD) exchange rate was trading in the region of 1.1578 – down around 0.15% on the day’s opening level.
The US NAHB Housing Market Index could also have an impact on the direction taken by the EUR/USD pairing.
The Euro to US Dollar (EUR/USD) exchange rate is currently trending in the region of 1.1578
The US Dollar to Euro (USD/EUR) exchange rate is currently trending in the region of 0.8635
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7658
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.3052