Have Senior Bankers Dissuaded the ECB from Cutting Rates?
Several senior European bankers have warned the European Central Bank (ECB) that it should not cut the deposit rate further negative at tomorrow’s policy meeting, lest it put undue pressure upon Eurozone banks. The Euro has made a recovery following the revelation, with investors hoping the pleas of bankers will have been enough to influence the Governing Council.
Bank of France Cuts Growth Forecast, Euro (EUR) Remains Weak
News that the French central bank has lowered its expectations for France’s economy hasn’t aided Euro exchange rates today. The Bank of France has trimmed -0.1% from its outlook and as such now anticipates growth of 0.3% in the current quarter. The bank pointed towards a drop in sentiment among factory executives as being an influencing factor on the downgrade.
The markets are assessing the economic impact of a year of quantitative easing, weakening EUR/GBP exchange rate ahead of tomorrow’s policy meeting. Meanwhile, Pound Sterling has been strengthened by strong production data.
Euro to Pound Sterling (EUR/GBP) Exchange Rate Weakened by Approaching ECB Stimulus Meeting
It has now been a year since the European Central Bank (ECB) implemented their monthly asset purchasing programme. The ECB buys assets at a rate of €1.3 million per minute, taking the total spent over the past twelve months to €700 billion. The programme deadline has already been extended by six months from September 2016 to March 2017 as a result of the December policy meeting. With global conditions having worsened significantly and low Eurozone inflation figures released in the interim, markets are widely expecting the ECB to loosen monetary policy at tomorrow’s Governing Council meeting.
Markets and economists currently expect either a -0.1% cut to the already negative deposit rate, an expansion of the monthly rate of asset purchases, or both. However, with the total spent on asset purchasing due to break above €1 trillion by July, ECB President Mario Draghi is having to fend off increasingly loud claims that the tactic doesn’t work.
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trading in the region of 0.7706.
Better-than-Expected UK Production Data Strengthens Pound Sterling to Euro (GBP/EUR) Exchange Rate
After last month’s disappointing results, today’s UK industrial and manufacturing production data has printed above forecast, showing a significant improvement on December’s performance. Manufacturing Production increased 0.7% on the month after a -0.3% contraction in December, while Year-on-Year Manufacturing contraction slowed to just -0.1% after a decline of -0.5% was forecast.
Industrial Production saw a 0.3% month-on-month (MoM) increase, ten basis points below forecast, but compared to 12 months prior rose at an above-forecast 0.2%.
Meanwhile, Buckingham Palace has now become embroiled in the ‘Brexit’ referendum row after the Sun newspaper published a story claiming the Queen delivered an anti-EU rant at then-Deputy Prime Minister Nick Clegg. Both Clegg and the palace have denied that the tirade, which was reported to the Sun by a ‘senior source’, ever happened.
According to a spokesman for Buckingham Palace, ‘The Queen remains politically neutral as she has for 63 years. We will not comment on spurious, anonymously sourced claims. The referendum is a matter for the British people to decide.’
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trading between 1.2893 and 1.2977.
Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast: ECB Interest Rate and Asset Purchasing Decision in Focus
The forthcoming policy decision from the European Central Bank will dominate market sentiment for the rest of the day and tomorrow. Another ‘policy bazooka misfire’ from Mario Draghi could repeat the Euro’s December performance, sending serious volatility through financial markets. The only data from the UK will be the RICS House Price Balance, which is released before the European session begins, while ‘Brexit’ news could threaten the Pound.
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trading between 0.7703 and 0.7750.