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ECB Decision Set to Spark Euro Movement

Yesterday’s high: €1.0951

Yesterday’s low: €1.0908

Strengthening German Retail PMI Supports Euro

While German factory orders fell short of forecasts on Wednesday morning this failed to significantly dent the Euro.

Even as orders were found to have contracted unexpectedly on the month the mood towards the single currency remained resilient.

Markets were later encouraged by a sharp rebound in the German retail PMI, which strengthened from 50.7 to 53.0 in August.

This signalled that the retail sector has moved further into expansion territory, indicating greater levels of confidence amongst domestic consumers.

With German bankers and finance minister Wolfgang Schäuble making fresh calls for the European Central Bank (ECB) to return to tighter monetary policy, the Euro found further support.

As a result the GBP/EUR exchange rate was trapped in a narrow range yesterday, lacking any fresh UK data to boost the appeal of the Pound.

Speculation over the shape of any final Brexit deal also persisted, with a leaked government proposal for immigration provoking significant backlash from businesses.

However, even though any sense of clarity is still lacking for the UK outlook, this was not enough to particularly weigh down the Pound at this juncture.

Euro Outlook: Volatility Expected as ECB Meets

The Euro could see a dramatic shift in direction today as a result of the European Central Bank’s (ECB) September policy meeting.

Even though markets do not particularly anticipate any change in monetary policy at this stage, the single currency could still come under pressure if policymakers prove more dovish in outlook.

On the other hand, if there is any hint as to the likely timing of the ECB tapering its quantitative easing program this could provoke a sharp surge in EUR exchange rates.

Signs that the ECB is preparing to return to a tightening bias are likely to shore up the Euro, even if policymakers issue any fresh warnings over the relative strength of the single currency.

A continued absence of UK data releases may leave the GBP/EUR exchange rate vulnerable to a more pronounced downtrend, especially if Brexit-based jitters pick up more dramatically.

Key Events

7th September

10:00 Eurozone Gross Domestic Product

12:45 European Central Bank Rate Decision

 

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Adam Wiffen

Currency Dealer

T: (0) 1442 892 064

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