The US election is currently occupying trader focus in the short-term, but long-term GBP EUR exchange rate forecasts could centre on QE.
Quantitative Easing Speculation Holds Downside Risks for Long-Term Pound Euro Exchange Rates
Quantitative easing – the process whereby a central bank creates new money to buy government bonds from the banks holding them – is a closely-watched topic with regards to UK and Eurozone monetary policy.
While markets speculate that the UK could see more asset purchasing from the Bank of England (BoE), the opposite is true of the European Central Bank (ECB). Although the BoE kept interest rates and the asset purchasing rate unchanged at its latest policy meeting, Governor Mark Carney noted that Threadneedle Street stands ready to up stimulus should it be required.
Therefore, indications the BoE plans to up QE will be negative for GBP EUR. Chancellor Philip Hammond has already said he would approve additional asset purchases, observing;
‘No request for quantitative easing has ever been refused and I see no reason why circumstances would be different in future.’
Meanwhile, markets have begun to postulate that the ECB is planning to taper its QE programme. At a rate of €80 billion per month, instantaneously halting the asset purchasing programme could cause a significant economic shock. Markets are keeping a close eye on hints that the Governing Council is thinking about gradually winding down the programme.
Suggestions the ECB plans to cut back on its stimulus measures, no matter how vague, will strengthen the Euro to the detriment of the Pound.
Interbank GBP EUR Exchange Rates
The short term moving average convergence difference (MACD) for GBP EUR exchange rates is currently edging higher after having nearly met the long-term MACD last week. While a soft signal thus far, if this trend were to continue, traders would take this as a sign that the Pound is enjoying upwards momentum. In this case, the markets may position themselves long on GBP EUR.
Meanwhile relative strength indicators put the Pound Euro exchange rate just below the neutral 50 mark, indicating that the pairing is trading around purchasing power parity.
At the time of writing the Pound Euro (GBP EUR) exchange rate was trending in the region of 1.12, while the Euro Pound (EUR GBP) exchange rate was trending near 0.89.
Comments are closed.