As Wednesday’s session progressed the Pound Sterling to Euro (GBP/EUR) exchange rate resumed trading in the region of 1.29 as comments by Bank of England Governor Mark Carney highlighted the diverging trends between the UK and Eurozone economies.
The Pound Sterling to Euro (GBP/EUR) exchange rate advanced further beyond the 1.29 level and could advance to 1.30 over the coming week as speculation increases that the European Central Bank will introduce a full scale quantitative easing programme at next weeks policy meeting.
Earlier in the session the Pound Sterling to Euro (GBP/EUR) exchange rate climbed to its strongest level since October 2008 on Wednesday as speculation increased that the European Central Bank (ECB) will introduce new monetary stimulus measures at next week’s policy meeting.
ECB Expected to Take Action Next Week
Comments made by ECB Governing council member Ewald Nowotny heightened expectations that the bank will take action next week; he said that policy makers should take the threat of deflation seriously and should not delay in delivering a response.
The comments add to those made by executive board member Benoit Coeure who said in an interview with a German newspaper that the bank ‘is in position to take a decision on January 22.’
ECB President Mario Draghi added to the speculation after telling a German newspaper that the ECB is ready to start buying government bonds.
Grexit risks have risen
Also weighing on the Euro was a report released by Moody’s which warned that the risks of Greece leaving the Eurozone have increased, but are still slightly lower than the chances seen back in 2012. The group said that the general election due to be held on January 25 is likely to have negative implications for other Eurozone members if the left-wing Syriza party takes power.
‘The likelihood of a Greek exit is still lower than during the peak of the crisis in 2012 and remains relatively unlikely. While Syriza is commited to the monetary union, it has also signalled that it could seek debt forgiveness from its Euro area peers. Other Euro area government are likely to reject such a request, partly because it could lead to similar demand from other highly indebted Euro are countries,’ said Moody’s.
Italian President Resigns, political uncertainty rises
Political uncertainty has risen in recession hit Italy after President Giorgio Napolitano resigned. Napolitano was Italy’s longest serving president; he cited the cause for his resignation as fatigue and old age.
The departure now heightens the risk of political uncertainty returning to Italy at a time when the nation’s economy is struggling to claw its way out recession.
Pound Sterling to Euro Exchange (GBP/EUR) Rate Forecast
The Pound is set to make more gains against the single currency as data released on Wednesday showed that industrial production across the Eurozone increased less than forecast on a monthly basis and fell more than expected on a year on year basis.
Balance of trade data due to be released on Thursday is also expected to disappoint and Friday’s inflation report is expected to confirm that the Eurozone is experiencing deflation.
