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Limited Euro Gains Likely Ahead of March ECB Rate Decision

Last week’s high: €1.1398

Last week’s low: €1.1178

Weaker-Than-Forecast Eurozone Inflation Fails to Prevent GBP/EUR Slump

Signs continue to point towards the European Central Bank (ECB) maintaining a rather dovish policy outlook in the coming months, to the detriment of the Euro.

Disappointingly, the German consumer price index was found to have eased further than forecast on the year in February, dipping from 1.6% to 1.4%.

This is likely to give the ECB incentive to leave monetary policy on hold for longer, especially as the corresponding Eurozone inflation data also pointed towards an easing in domestic price pressures.

Even so, the GBP/EUR exchange rate saw a significant slump over the course of the week thanks to renewed market jitters over Brexit.

The publication of the EU’s draft withdrawal treaty prompted the Pound to weaken sharply on Wednesday, with Prime Minister Theresa May rapidly rejecting the proposal.

With the UK and EU still looking distinctly at odds on the subject of Brexit, and as little over a year remains before the March 2019 deadline, the upside potential of the GBP/EUR exchange rate appears limited.

Euro Outlook: More Confident ECB Tone Could Shore up EUR Rates

As long as the Eurozone economy can continue to demonstrate signs of resilience this should keep the GBP/EUR exchange rate under pressure in the near term.

Even if February’s raft of services and retail PMIs fail to show improvement on the month this is unlikely to be enough to significantly dent the appeal of the single currency.

Little action is expected from the ECB’s interest rate decision on Thursday, although the Euro is likely to see some jitters nevertheless.

Unless policymakers show signs of shifting towards a more optimistic outlook the potential for further EUR exchange rate gains will be limited.

Developments surrounding the Trump administration’s planned tariffs on steel and aluminium imports could drive additional Euro volatility, with the threat of a global trade war heating up.

Key Events

5th March

09:00        Eurozone Services PMI

09:30        UK Services PMI

10:00        Euro-Zone Retail Sales

6th March

09:10        Eurozone Retail PMI

8th March

12:45        European Central Bank Rate Decision

9th March

07:00        German Trade Balance

09:30        UK Visible Trade Balance

12:00        UK NIESR Gross Domestic Product Estimate

Michael Vaughan

Currency Dealer

01442 892 061

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