The Euro to Pound Sterling (EUR/GBP) exchange rate is back to its late-February highs after the European Central Bank’s Eurozone stimulus measures backfired spectacularly – due to the ECB President’s confidence.
European Central Bank (ECB) President Mario Draghi Announces Unexpected Eurozone Stimulus Measures
In a move that should have been considered positive for the Eurozone’s economy, European Central Bank (ECB) President Mario Draghi outperformed all analyst and investor expectations in yesterday’s key central bank announcement.
Markets found themselves utterly shocked as more rates were cut than expected in an attempt to weaken the Euro and stimulate growth. The benchmark interest rate was cut to zero from 0.05%, the deposit rate was cut from 0.30% to 0.40%, the overnight rate was cut from -0.25% to -0.30% and the monthly asset purchase target (Quantitative Easing) jumped from €60 billion to €80 billion.
Such drastic measures seemed likely to have the desired effect on the Euro as the ‘Chunnel’ exchange rate dropped from 0.7728 to 0.7659 in a matter of minutes.
However irresolute investors paused in anticipation of Draghi’s press conference less than an hour later after the initial announcements.
ECB Confidence in Lack of Future Cuts Influences Hugely Bullish Movements in Euro (EUR)
Mario Draghi made what is considered by analysts to be a vital mistake in his European Central Bank (ECB) press conference yesterday afternoon by implying that the central bank was out of options when it comes to stimulating the economy.
The EUR/GBP pair is currently in a downtrend, having dropped by around -0.7%. It is trending in the range of 0.7772 and is down from this morning’s levels of 0.7828.
The exchange rate’s current slump follows yesterday’s unexpected spike, with the Euro previously gaining in response to Draghi’s rate-related comments at his ECB press conference. There, the ECB President claimed that that day’s interest rate cut – to zero – would likely be the last.
Reducing investor-aversion to the Euro is seen by many analysts as a mistake. The rally against the Euro abruptly turned the other direction after these remarks. The EUR/GBP exchange rate soared from 0.7665 and landed at a considerably high 0.7845 before the day was over.
Despite the Eurozone announcement affecting rivals like the US Dollar more, the Pound (which is rocked by an ongoing ‘Brexit’ debate) was unable to remain sturdy as investors flocked back to support the Euro.
Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast: Unclear Future after Unintended ECB Outcome
Analysts had not been prepared for the aggressive measures that Mario Draghi announced would be put in place at the European Central Bank. They were even less prepared for the Euro rally that followed after he commented on the unlikeliness of future cuts.
Despite the ECB’s attempts to stave off deflation, many wonder if this latest move has backfired and deflation will continue despite the central bank’s best efforts.
It is currently unclear how the EUR/GBP exchange rate will behave going forward as the financial market reels from the week’s events.
Though the pair currently seems to be gradually trending downward, it is also unclear if this trend will achieve the Euro weakness that the ECB hoped for. German CPI also updated as expected, confirming that consumer price pressures in the Eurozone’s largest economy remained weak.
It’s possible that the Pound will continue to strengthen against the Euro after this morning’s UK trade balance data revealed a slightly narrower than forecast trade deficit. Continued ‘Brexit’ discussions may leave Sterling as easily-influenced as it has been the last few weeks, however.
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7772 while the Pound Sterling to Euro (GBP/EUR) exchange rate trends in the region of 1.2872.