Pound Sterling (GBP) Softens as Second Day of EU Talks Begins
Traders are bracing for a second day of rumours, comments and speculation as the second and final day of the Brussels summit commences. According to Italian Prime Minister Matteo Renzi, ‘some timid steps forward on migration, some steps back on a UK deal… I’m always confident, but a bit less optimistic than when I arrived.’
According to a European spokesman, a deal may be reached later during a working dinner tonight.
Pound (GBP) Bullish: Cameron ‘Battling Hard for Britain’
David Cameron is battling hard for Britain, but will not accept a deal that isn’t in the best interests of the UK, the Prime Minister has said in a recent statement. According to Cameron, ‘We’ve got some important work to do today and tomorrow and it’s going to be hard. I’ll be battling for Britain. If we can get a good deal I’ll take that deal. But I will not take a deal that doesn’t meet what we need.’
David Cameron’s hopes of securing a reform to Britain’s EU membership are dwindling fast, although the Pound Sterling to Euro (GBP/EUR) exchange rate remains positive. Meanwhile, the Euro (EUR) is putting on a mixed performance as investors await details of the most recent European Central Bank (ECB) policy meeting and questions over how effective loosening monetary policy further would be.
Cameron’s Officials Concede Prime Minister may not Secure a Reform Deal: GBP/EUR Still Strengthens
David Cameron’s own officials have admitted that the Prime Minister may fail in his bid to secure new membership terms for the UK. The news comes as a leaked official document suggests European Council President, Donald Tusk, was unable to secure a consensus among EU leaders regarding reforms to the Lisbon Treaty. Draft documents sent to EU leaders show suggested revisions in square brackets, which is the internationally accepted way of showing that there has been no agreement on the issue yet.
Cameron’s reform hopes were already floundering after several Eastern European countries rejected proposals to restrict child and in-work benefit payments to EU migrants. David Cameron originally wanted to suspend these entirely for four years, but in the end the deal agreed with Tusk was for benefits for migrants to gradually increase over a four year period as they integrated further with the labour market.
According to British officials a ‘war room of lawyers’ have been drafted in to assist the 28 European leaders.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trading in the region of 1.2846.
Euro to Pound Sterling (EUR/GBP) Soft: Shadows Hang over Monetary Policy ahead of ECB Policy Meeting Account
The Euro’s performance across the board is mixed. Details of the most recent European Central Bank (ECB) meeting are due to be published today and investors will be looking for clues as to the overall sentiment of the Governing Council.
With Mario Draghi and other officials heavily hinting at additional loosening of monetary policy in March, experts have begun to question how effective the measures are. A drop in bank shares could curb any further cuts to the negative deposit rate, unduly squeezing profit margins by increasing the ‘commission’ banks have to pay to keep money in their vaults.
Moody’s have also released a report today that questions how much power central banks have left to act decisively. As well as questioning whether the ECB’s asset purchasing programme is working, it also highlights the wider global issues threatening ECB policy.
According to the report by Moody’s, ‘Where government budgets are hit by lower commodity prices and depreciating currencies fuel inflation, room to mitigate the downside risks is limited. In Europe and Japan, elevated government debt continues to constrain fiscal policy while the efficacy of multiple rounds of quantitative easing is already being tested.’
The Euro to Pound (EUR/GBP) exchange rate is currently trending between 0.7776 and 0.7817.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: ECB Monetary Policy Meeting Account on Tap
With no UK data due out today, Pound Sterling’s movements are likely to be dictated by further updates from the EU summit in Brussels and speculation regarding the likelihood that David Cameron can convince the other member states to back his proposed reforms. There is plenty of Eurozone data set for release, including the Italian Current Account figures and inflation report for Ireland. The headline release today will be the minutes from the latest monetary policy committee meeting, which will likely shed more light on the possibility of additional stimulus measures being introduced in March.
The Pound Sterling to Euro exchange rate is currently trading between 1.2783 and 1.2857.