GBP/EUR Exchange Rate Trends Lower as ECB Maintains Course Towards Further Policy Tightening
The Euro (EUR) found renewed support in the wake of the European Central Bank’s (ECB) October policy meeting as policymakers showed no signs of changing course on plans to wind down its quantitative easing programme.
With the ECB still set to end its asset purchase scheme in December the single currency was encouraged to push higher against many of its rivals on Thursday.
While President Mario Draghi acknowledged the risks to the Eurozone outlook from increasing global protectionism and market volatility he maintained the view that these risks are ‘broadly balanced’.
As a result, with interest rates still expected to rise in summer 2019, the mood towards the Euro picked up.
Even though October’s German IFO business sentiment surveys showed a continued decline in confidence within the Eurozone’s powerhouse economy this was not enough to keep EUR exchange rates on a downtrend.
Rising Fears of No-Deal Brexit Drag on Pound Sterling (GBP) Exchange Rates
Worries over Brexit continued to weigh down Pound Sterling (GBP), meanwhile, as progress towards a deal remains lacking.
Fears over the prospect of a no-deal Brexit have remained elevated in recent days, especially in the face of Theresa May’s struggles to rally support among MPs.
As analysts at Rabobank commented:
‘The EU will not convene in November to discuss Brexit due to lack of progress on the Irish border conundrum.
‘A deal between the EU and the UK now seems likely at the 13-14 December EU summit.
‘Domestic politics have flared up in tensions again and the cumbersome dynamics will make it challenging for Prime Minister (PM) May to get an eventual deal through the UK Parliament.
‘We still regard a last minute deal as the most likely outcome, but due to the recent turn of events we now estimate the chances of a ‘hard Brexit’ as almost as high as the base case.’
Unless there are signs that May can secure a compromise over the Irish border issue and unite MPs behind a Brexit agreement GBP exchange rates look set to come under further pressure.
Further Signs of ECB Optimism to Support Euro (EUR) Exchange Rate Gains
Comments from ECB President Draghi could provoke further GBP/EUR exchange rate losses ahead of the weekend, provided he leans towards a more optimistic outlook.
If Draghi sounds a positive note on Eurozone inflation this could give the Euro a fresh boost, cementing hopes that the central bank will continue to move towards tighter monetary policy.
Any greater expression of concern over the growth outlook of the currency union, though, may give investors an incentive to sell out of the single currency.
Focus will also fall on the latest ECB survey of professional forecasters, particularly with regards to its updated growth and inflation expectations.
As long as the survey appears to support the case for further ECB tightening then the Pound Sterling to Euro (GBP/EUR) exchange rate is likely to extend its slide.
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