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EUR Rates Slump after ECB Expresses Concern over Euro Strength

Last week’s high: €1.1587

Last week’s low: €1.1445

Surprisingly Dovish ECB Minutes Weigh Heavily on Euro

Unexpectedly dovish European Central Bank (ECB) meeting minutes put significant pressure on the Euro this week.

Policymakers expressed concern over the prospect of a global trade war, while also noting worries over the relative strength of the single currency.

This suggests that the ECB is likely to maintain a more cautious policy outlook in the near future, with policymakers looking to keep the Euro from strengthening further.

As a result, the GBP/EUR exchange rate rallied sharply on the back of the minutes, shrugging off the more mixed nature of the week’s UK data.

Even so, after the NIESR gross domestic product estimate for the first quarter clocked in at just 0.2% the underlying support for the Pound remained muted.

Confidence in the outlook of the Eurozone economy was also eroded by a surprise contraction in industrial production on the month.

With the currency union’s economic growth losing momentum since the start of the year the upside potential of EUR exchange rates looks limited.

Euro Outlook: Volatility Forecast on UK and Eurozone Inflation Data

If the finalised Eurozone consumer price index confirms that inflation accelerated from 1.1% to 1.4% on the year this could offer the Euro a rallying point.

As long as inflation shows signs of pushing towards the ECB’s 2% target this is likely to mute the downside bias of EUR exchange rates.

On the other hand, if the CPI is revised lower this could give the GBP/EUR exchange rate another strong boost on Wednesday.

Focus will also fall on the latest ZEW economic sentiment surveys, with the German confidence index forecast to decline on the month.

The GBP/EUR exchange rate could also find support if March’s UK consumer confidence index shows a renewed uptick in domestic inflationary pressure.

Higher inflation or wage growth figures are likely to boost bets on the prospect of the Bank of England (BoE) raising interest rates again in May.

 

Key Events

17th April

09:30   UK Average Weekly Earnings

10:00   German ZEW Economic Sentiment Survey

18th April

09:30   UK Consumer Price Index

10:00   Eurozone Consumer Price Index

19th April

09:30   UK Retail Sales

20th April

07:00   German Producer Price Index

15:00   Eurozone Consumer Confidence Index

 

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To keep up to date with the Euro, visit the Euro blog in our Currency News section.

 

Joe Mayhew

Currency Trader

T: (0) 1442 892 069

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