The Euro is falling today after yesterday’s European Central Bank (ECB) comments sparked a major surge against the Pound (GBP) and US Dollar (USD). Meanwhile, the Pound is soft in anticipation of UK trade figures due out later in the London session, while the US Dollar is putting on a mixed performance.
Euro to Pound Sterling (EUR/GBP) Exchange Rate Slumps: Correctional Trading Brings Euro Down from Post-Policy Meeting High
Yesterday’s ECB decisions caused significant volatility in the financial markets, from which the Euro is just beginning to recover. Initially, the over-delivery of policy measures compared to market expectations caused the common currency to tank across the board. Alongside the expected -0.1% cut to the deposit rate, the ECB announced a €20 billion per month extension to the rate of asset purchasing, twice as much as widely expected. On top of this, they stunned markets by slashing the benchmark interest rate from 0.5% down to zero, effectively giving Eurozone banks free money.
However, in a remarkable reversal of fortune, the Euro was later boosted when ECB President Mario Draghi commented – many say unwisely – that the Governing Council would not cut interest rates further into the negative. Investors flocked back to the common currency, turning losses of -2% into gains of a corresponding magnitude, while stocks dropped. Today, as the Euro rally ends, profit taking and correctional trading is bringing the Euro back down, although EUR/GBP remains at a 10-day high.
Meanwhile, Pound Sterling is soft ahead of today’s trade balance figures. December’s shrinking deficit caused the Pound to rise initially, but a closer look at the data revealed some worrying tendencies and the GBP/EUR exchange rate slumped. The data had showed that the deficit hit a record high in 2015. Today’s figures are expected to show that the trade gap widened again in January.
Confusion over Fed Decision Keeps US Dollar (USD) Soft, but Euro (EUR) Weakness Prevails
Mixed data and equally mixed comments from Federal Reserve officials have severely clouded market sentiment over the past few days. The chances of an interest rate hike during 2016 have fluctuated wildly since January, rising from a 0% chance to anticipation of one in September at the earliest, according to Fed funds futures. However, those futures have also shown a rising concern that the Federal Reserve will cut interest rates back down to 0.25%, undoing their previous action in December.
The uncertainty was amplified thanks to last week’s Non-Farm Payrolls figures. While job growth showed a strong rise, wage growth was sluggish, painting a gloomy picture for the path of US inflation. It is this development that is causing many in the markets to believe the Fed will hold back from tightening monetary policy any further.
Friday is usually a high-impact data day for the US, but today sees very little, with the most import data being the tier 2 US Rig Count.
Current EUR, GBP, USD Conversion Rates
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trading around 0.7793, while Pound Sterling to Euro (GBP/EUR) is trending in the region of 1.2827.
The Euro to US Dollar (EUR/USD) exchange rate is currently trading between 1.1123, US Dollar to Euro (USD/EUR) is trending in the region of 0.8985.