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GBP/EUR Falls on Dovish S&P Assessment

Yesterday’s high: €1.1266

Yesterday’s low: €1.1192

GBP/EUR Falls as S&P Claims Rate Hike Not Warranted

GBP EUR stumbled yesterday following an assessment from the ratings agency Standard & Poor’s, who warned that Britain’s economy may not be strong enough to handle an interest rate hike at this juncture.

This announcement followed an increasing number of hawkish speeches from Bank of England (BoE) policymakers, with Governor Mark Carney’s recent statements at the forefront.

Carney reiterated his sentiment last week, stating:

‘What we have said, [is] that if the economy continues on the track that it’s been on, and all indications are that it is, in the relatively near term we can expect that interest rates would increase somewhat’.

The strength of the UK’s economy has, however, come into question this week on the back of a spate of disappointing UK data releases, notably the Markit manufacturing PMI on Monday and the Construction PMI on Tuesday – both of which missed their forecasts.

S&P referenced these disappointing prints, pointing out that the expected recovery from a weak first half of 2017 had failed to come to fruition and that a rate hike would only harm the economy.

Surprisingly, S&P also critiqued the BoE, accusing them of purposefully hyping a rate hike in order to buoy the Pound through a period of strife.

This news quickly weighed on the Pound and helped the Euro to capitalise.

On the flip side, the Euro remained sturdy on the news that the European Central Bank (ECB) intends to end its bond-buying scheme next year, yesterday’s ECB meeting minutes revealed.

The accounts of the bank’s September vote meeting suggested that members of the governing council were only growing in confidence that the bloc’s economic recovery will continue.

The account stated:

‘A view was put forward that conditions were increasingly falling into place that would allow the intensity of monetary policy accommodation to be adapted and would provide an opportunity to scale back the Eurosystem’s net asset purchases’.

The ECB is expected to announce the tapering of its quantitative easing (QE) scheme at its October meeting on the 26th, although there remains concern regarding wage growth within the bloc and indeed levels of inflation, which continue to remain below target levels.

Euro Outlook: German Factory Orders and Catalan Announcement Ahead

The Euro’s advance may continue today thanks to the results of the German factory order figures.

German factory orders climbed month-on-month from the -0.4% contraction in July to growth of 3.6% in August.

The year-on-year figure revealed a surprising jump from 5.4% in the previous period to 7.8% in August.

However, markets will also be keeping an eye on the situation in Catalonia, which is steadily boiling as the Catalonian Government decides if and when it will declare its independence.

If leader of Catalonia Carles Puigdemont does declare independence then the Spanish Government may initiate Article 155 to legally take control of the rogue region – though what this means in physical terms remains questionable.

Any instability within Spain is likely to continue to reflect badly on the stability of the Eurozone itself, with potential consequences for EUR should things continue to escalate.

Key Events

6th October 2017

Potential Catalan Independence Announcement

06:00 German Factory Orders

12:00 BoE Haldane Speaks in London

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

Oliver Emanuel

Currency Dealer

T: (0) 1442 892 083

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