The Euro has risen by 0.2% against the Pound today and could make further gains in the future, assuming that forecasts are pessimistic for near-term UK economic growth.
- EUR GBP rate up to 0.87 – GBP EUR trades down at 1.14
- Euro remains steady following ECB conference – Falling German trade surplus fails to dent EUR demand
- Pound softens on sliding production stats – Trade deficit reduction fails to boost GBP
- Eurozone inflation could be confirmed at 2% next week – Pound crash expected if Article 50 is triggered
The Euro’s strength today is largely a carryover from Thursday, when European Central Bank (ECB) President Mario Draghi delivered an optimistically-interpreted speech following another ECB interest rate freeze.
As well as assuring the press that the Euro was in no danger of going away, Draghi also declared that the threat of deflation had passed and further excited Euro traders by indicating that the ECB could be taking a hands-off approach in the future.
Two sides were seen to this eventuality, with Barclays economists stating;
‘We now think that the [ECB Governing Council] will make a first step in the direction of an exit strategy at the June meeting with a change in the forward guidance, and we continue to see further asset purchases but at a reduced pace in 2018’.
On the other hand, IHS Global Insight Chief European and UK Economist Howard Archer downplayed a dramatic change;
‘There are signs that the ECB is starting to change its tone on monetary policy and inching towards a shift in its policy stance. At the moment though, it is no more than baby steps’.
Regardless of expert interpretation, the Euro has remained in demand today, even after Germany’s January trade surplus fell from 18.7bn to 14.8bn. Other Eurozone news has seen the Greek trade deficit expand and inflation rise, though more supportively industrial production has jumped from 2.5% to 7.2%.
Along with Greek and German variants, the UK trade deficit has also come out today, through a deficit reduction in January hasn’t caused any real positive Pound Euro movement.
This is due to other UK ecostats showing falling industrial and manufacturing production levels in January, which bodes poorly for incoming PMI figures at the start of April.
Looking ahead to next week, one of the biggest domestic influences on the Euro could be Thursday’s inflation rate figures, which are expected to show a finalised rise from 1.8% to 2% in February.
This outcome could trigger a Euro appreciation, given that it will set base inflation firmly on the European Central Bank (ECB) target of 2%. That said, the ECB is not expected to immediately change tone to interest rates, given how much consideration goes into even a single rate hike.
Two events could batter the Pound next week, starting with Wednesday’s expected Article 50 trigger. If this does take place, the UK will be placed irreversibly on the path out of the EU so Sterling is expected to crash when the trigger comes.
Secondly, the Bank of England (BoE) interest rate decision is due on Thursday; the BoE may also weaken the Pound if they forecast hard times ahead for the UK economy under Brexit talks.
Current EUR GBP Interbank Exchange Rates
At the time of writing, the Euro to Pound (EUR GBP) exchange rate was trading at 0.87 and the Pound to Euro (GBP EUR) exchange rate was trading at 1.14 today.
