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Euro Soars after ECB Meeting

Yesterday’s high: €1.0945

Yesterday’s low: €1.0865

Euro Rallies in Spite of Lack of ECB Action

Even though the European Central Bank (ECB) made no alterations to monetary policy at its September meeting – with the accompanying statement being identical to July’s – the Euro still went on a bullish run yesterday.

The single currency was encouraged by the latest commentary from ECB President Mario Draghi, who appeared to be paving the way for taking action on the quantitative easing program in October.

As Draghi also expressed limited concern over the relative strength of the Euro, this encouraged EUR exchange rates to extend their gains.

However, as the ECB also lowered its inflation forecasts and indicated that interest rates are unlikely to rise from their current lows for some time this did somewhat limit the bullishness of the Euro.

With Brexit-based jitters still clouding the UK outlook this left the GBP/EUR exchange rate on a sharp downtrend.

As signs continue to point towards the government taking a hard approach to Brexit negotiations, the mood towards the Pound deteriorated further.

A solid uptick in the Halifax house price index was not enough to encourage markets to favour Sterling on Thursday, even though the domestic housing market demonstrated greater signs of resilience.

Euro Outlook: Draghi Boost Unlikely to Last Long

The Euro may struggle to maintain its bullishness today, with the impact of Draghi’s comments likely to fade.

This could offer the GBP/EUR exchange rate some support, particularly if the day’s raft of UK data proves encouraging.

Forecasts point towards a solid rebound in UK manufacturing production on the year in July; a result which would suggest that the domestic economy is in a stronger state of health.

If the visible trade deficit is also found to have narrowed in July this could help to boost the Pound across the board, indicating that the economy’s exposure to a deterioration in trade conditions has diminished.

However, this afternoon’s NIESR gross domestic product estimate for the three months to August could weigh heavily on the GBP/EUR exchange rate if it fails to show an improvement.

Unless growth shows signs of picking up in the third quarter the upside potential of the Pound is likely to remain limited.

Key Events

8th September

09:30 UK Industrial Production

09:30 UK Manufacturing Production

09:30 UK Visible Trade Balance

13:00 UK NIESR Gross Domestic Product Estimate

 

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

Arron Morris

Currency Dealer

T: (0) 1442 892 064

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