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GBP/EUR Strengthens in Spite of Brexit Jitters

Yesterday’s high: €1.1017

Yesterday’s low: €1.0958

Euro Dented by ECB Comments

Even as the UK parliament prepared to vote on the first major piece of Brexit legislation, the GBP/EUR exchange rate trended higher.

In part this was thanks to the weakness of the Euro, which was weighed down by the latest comments from a European Central Bank (ECB) policymaker.

ECB Executive Board member Benoît Cœuré took a rather dovish tone in his remarks, suggesting that monetary policy is likely to remain accommodative for some time to come.

His warning over the relative strength of the single currency, and its detrimental impact on domestic inflation, helped drive the Euro down across the board.

With market risk appetite also picking up after a rather quiet weekend for global geopolitics, there was little to support EUR exchange rates on Monday.

The mood towards the Pound, meanwhile, improved as markets bet that the repeal bill will not be shot down in spite of Labour’s stated intention to vote against it.

While Brexit-based uncertainty is still far from over, this was still enough to boost the Pound at the start of the week.

Euro Outlook: Dovish ECB Speak Could Exacerbate EUR Weakness

With ECB vice president Vítor Constâncio set to speak this afternoon the Euro may struggle to find any particular traction against its rivals.

If Constâncio also adopts a cautious view on the subject of monetary policy, this could further undermine the likelihood of the ECB beginning to taper its quantitative easing program in the near future.

Any signs that the central bank is maintaining a dovish policy bias could significantly dent EUR exchange rates, with markets already impatient for a return to tighter policy.

On the other hand, the GBP/EUR exchange rate could benefit from August’s UK consumer price index data.

If inflationary pressure is found to have risen once again in August this could encourage bets that the Bank of England (BoE) will have to act soon.

While higher inflation is not overly positive for consumer confidence, and the wider economy by extension, a strong showing here could still encourage a fresh Pound rally.

Key Events

12th September

09:30 UK Consumer Price Index

14:45 ECB Vice President Constâncio speaks in Frankfurt

 

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

James Spurway

Currency Dealer

T: (0)1442 892 070

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