Pound (GBP) Still Negative despite EU Official Confidence
The President of the European Parliament, Martin Schulz, says he is optimistic that a deal will be reached at today’s EU summit in Brussels. Pound Sterling remains in negative territory, however, thanks to threats made by the Greek Prime Minister, Alexis Tsipras.
Many EU officials are frustrated that the ‘Brexit’ talks are dominating today’s discussions, claiming that the refugee crisis is a much more pressing and relevant matter. With that in mind, Tsipras has threatened to veto any deal on Britain’s EU membership reforms unless the other EU leaders promise not to close their borders to migrants, which would leave Greece responsible for a huge number of refugees. The move has the potential to derail the entire summit.
It would seem that the most contentious issue among the reforms – the ‘Emergency Brake’ system to halt benefits – has been agreed, although for how many years it will remain in affect has not been confirmed.
Warnings of another wave of economic hurt are keeping EUR/GBP and EUR/USD weak today. The Euro (EUR) is in positive territory but struggling to gain much ground against Pound Sterling (GBP) thanks to strong UK data, while the US Dollar (USD) is bearish overall, but advancing on the single currency ahead of today’s key US inflation figures.
Euro to Pound Sterling (EUR/GBP) Exchange Rate Softens: UK Borrowing and Retail Sales Better Estimates
The Euro is weak again today after the release of yesterday’s dovish minutes from the European Central Bank’s latest policy meeting, which revealed fears among Governing Council members that the Eurozone could be hit by a ‘second round’ of negative factors. According to the minutes of the most recent meeting, ‘Inflation had continued to be weaker than expected, mainly owing to the renewed sharp fall in oil prices, but also to persistently subdued underlying price pressures. Weaker than anticipated growth in wages, in conjunction with declining inflation expectations, could also signal increased risks of second-round effects.’
Meanwhile, Pound Sterling has been strengthened by the release of strong UK borrowing and sales data. The key borrowing figure has printed well above forecast, showing a surplus of £11.8 billion, a much bigger rise from last month’s -£7.5 billion deficit than the increase to -£3 billion forecast. Retail Sales have also outshone predictions, rising 2.3% month-on-month and 5.2% year-on-year. The timing of the data release may be unfortunate for investors, however, as the positive news could be overshadowed by the continuing talks in Brussels regarding the UK’s membership reforms.
Euro to US Dollar (EUR/USD) Exchange Rate Holding Opening Levels: Fed Williams sees ‘Gradual Policy Normalisation’
The US Dollar is soft ahead of the key Consumer Price Index figures due out later today. With more than one member of the Federal Reserve noting that the path of interest rates will be data dependent, investors will be hoping for strong inflation data; core CPI is expected to remain steady at 2.1% while the non-core index is forecast to rise 1.3%, nearly double the previous month’s growth of 0.7%.
San Francisco Fed President, John Williams, has spoken of his preference for continuing with a steady tightening of monetary policy. After an upbeat assessment on the future direction of the US economy, Williams concluded that he continues to see ‘a gradual pace of policy normalization as being the best course. My preferred route is a gradual path of increases. This reflects the fact that the economy still needs a gentle shove forward from monetary policy, as we continue to navigate the headwinds from weakness abroad and their effects on the dollar and commodity prices.’
Current EUR, GBP, USD Conversion Rates
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trading in the region of 0.7752, while the Pound Sterling to Euro (GBP/EUR) exchange rate is trending around 1.2890.
The Euro to US Dollar (EUR/USD) exchange rate is currently trading in the region of 1.1082, while the US Dollar to Euro (USD/EUR) exchange rate is trending around 0.9021.