The Euro has fallen by -0.3% against the Pound today, in the wake of a largely disappointing European Central Bank (ECB) event.
The ECB had been expected to start tightening monetary policy or taper off the quantitative easing program, but showed little enthusiasm for either course of action.
The bank’s monthly bond-buying limit was cut in half to €30bn, but this was not taken as a sign that the ECB is at all ready to start considering a wind-down.
(First published October 25th, 2017)
Today’s trading has seen the Euro slide against the Pound, while future developments could see even greater losses for the EUR GBP pairing.
The Pound has rallied lately on GDP data, but thoughts of a GBP-boosting UK interest rate hike could prove premature.
Euro could Struggle if Catalonian Election Backfires
Looking to the future, the Euro could face difficulties against the Pound if the situation in Catalonia takes a turn for the worse.
The last news was that the Spanish government plans to activate Article 155 of the constitution, enabling the takeover of various administrative positions in Catalonia.
This follows indecision from Catalan President Carles Puigdemont, who didn’t declare independence or back down last week.
The process is expected to have a number of stages, including the removal of Catalonian officials from office and an eventual election in the new year.
This election, while touted as a means of removing pro-independence figures from power, might backfire for the Spanish government.
If the desire for independence proves too great and pro-independence officials continue to dominate the Catalonian government, the Euro could tumble.
This would be because the two governments would be no closer to an effective resolution, having effectively gone in a democratic circle during the electoral process.
Will BoE Commit to November Interest Rate Hike and Trigger GBP Rally?
The next significant source of Pound movement will come on November 2nd, when Bank of England (BoE) policymakers meet to make their monthly interest rate decision.
In the wake of a minor UK GDP rise, economists have been vocal about a possible November rate hike, which would likely be from 0.25% to 0.5%.
Reflecting on the matter has been Kamal Ahmed, BBC Economics Editor;
‘The slightly better growth figures will strengthen the arguments of the interest rate hawks on the BoE’s Monetary Policy Committee (MPC).
Next week, the BoE’s rate setting committee meets to decide whether to raise interest rates for the first time in more than a decade.
With inflation at 3%, BoE Governor Mark Carney has signalled that an increase is on the cards.
And with economic growth more robust than many economists expected, those who support that direction of travel on the MPC will be emboldened.
To be clear, any rate rise will be small. And future rate rises will be gradual’.
In the event that MPC members do commit to higher UK interest rates, the Pound could rally next week.
Given that the odds are around 50/50, leaving interest rates untouched might not trigger a major Pound decline, but could still bring a drop in the GBP EUR exchange rate.
Recent Interbank EUR GBP Exchange Rates
At the time of writing, the Euro to Pound (EUR GBP) exchange rate was trading at 0.8918 and the Pound to Euro (GBP EUR) exchange rate was trading at 1.1210.
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