Euro (EUR) Continues Slump as Bank Group Warns of ‘Anomalies’
The Bank for International Settlements (BIS) – a central bank-owned institution – has warned that there are several anomalies in the Eurozone bond market which suggest turbulence ahead.
BIS head of the monetary and economic department, Cladio Borio, has warned of a high number of bad Eurozone loans, as well as the potential of a US rate hike, is raising the risk of ‘negative spillovers’ into emerging economies.
According to the BIS: ‘Despite low interest rates, rising debt levels have pushed debt service ratios for households and firms above their long-run averages, particularly since 2013, signalling increased risks of financial crises’ for emerging economies.
Disappointing data from Germany, combined with the market correction following the shock of the European Central Bank (ECB) interest rate decision, has paved the way for the GBP/EUR exchange rate to advance.
GBP/EUR Exchange Rate News: Euro Weakness Allows Pound Sterling to Make Bullish Gains
A weak Euro (EUR) has been the primary driver behind appreciation in the GBP/EUR exchange rate, although Pound Sterling (GBP) is currently performing well against the majority of currencies. Strength in the US Dollar has weakened many assets, including the Australian Dollar (AUD) and the New Zealand Dollar (NZD).
Pound Sterling is still relatively weak following a number of mixed releases over the past few days which have caused concerns over the UK economy. While the essential service sector continues to expand, manufacturing and construction have showed a larger-than-expected slowdown in growth. A rise in the number of mortgage approvals served to fuel fears of a housing bubble, which weren’t helped by the Bank of England (BoE) highlighting the buy-to-let market as one of five major risks to the UK’s financial stability.
The GBP/EUR exchange rate is currently trading in the region of 1.3924.
EUR/GBP Exchange Rate Forecast: Slump as Market Reacts to German Industrial Production Data
The Euro is currently slumping against the majority of currencies – apart from those which have been weakened by the US Dollar advance – as the market corrects following Thursday’s ECB decision. Traders had anticipated a cut to the deposit rate, but when the ECB delivered only the minimum-expected cut of -0.1% and failed to expand the amount of assets purchased in its Quantitative Easing scheme Euro confidence returned and the common currency made huge gains.
The resulting slowdown in demand, coupled with a bullish US Dollar after Friday’s US Non-Farm Payrolls, has seen the Euro pushed back again.
Euro confidence has not been helped by the release of German Industrial Production figures, which show that the industry experienced only minor growth in October, growing from -1.1% to a seasonally-adjusted rate of 0.2%. Year-on-year (YoY) industrial production failed to expand at all, defying predictions of a rise from 0.4% in September to 0.7%.
The EUR/GBP exchange rate is currently trading between 0.7167 and 0.7202.
GBP/EUR Exchange Rate Forecast: Eurozone GDP Figures Due Tomorrow
With no more UK or Eurozone data to come during today’s London session, the GBP/EUR exchange rate will be driven by existing data, market correction and a bullish US Dollar as speculation of a US interest rate hike by the Federal Open Market Committee (FOMC) see the ‘Buck’ making strong advances.
Tomorrow sees the release of important Eurozone Gross Domestic Product figures. Seasonally-adjusted GDP is expected to show that growth continued at a steady rate of 0.3% this quarter, with YOY growth remaining at 1.6%. The UK will see the release of the NIESR GDP Estimate, as well as industrial and manufacturing production statistics, both of which are expected to show minimal improvement.
The GBP/EUR exchange rate has risen 0.4% and is trending between 1.3873 and 1.3942.