Euro Volatile as Reports of ECB Stimulus Circulate
The Euro to Pound (EUR/GBP) exchange rate fluctuated on Wednesday amid mixed messages from European Central Bank officials on the subject of future stimulus measures.
In recent months the ECB has slashed rates to record lows, introduced a negative deposit rate and rolled out Targeted Long Term Refinancing Operations in an attempt to keep the Eurozone’s fairly limp economic recovery moving forward.
Their best attempts have fallen short however and the Eurozone appears to be on the verge of entering a triple dip recession.
Germany, the currency bloc’s largest economy, is also struggling after supporting the region through five years of financial crisis, with fundamentals from inflation to manufacturing production falling short.
Concerns that the situation isn’t going to improve without some form of intervention from the ECB has led to speculation that the central bank intends to unleash full-scale quantitative easing measures in the near future.
This week Euro fluctuations were triggered as Reuters News Agency reported on the prospective purchasing of corporate debt by the ECB.
The insinuation saw economist Ian Williams note; ‘The news confirms that the ECB is now in a position where nothing can be ruled out.’
However, the impact of this report was undermined after ECB Governing Council Member Luc Coene contradicted the assertion. Coene noted; ‘We could extend out interventions to other instruments, such as corporate bonds [but] there is no concrete proposal on the table for the moment.’
In the view of one London-based strategist, the ECB shouldn’t even be contemplating taking such a step.
Suki Mann of UBS AG commented; ‘The very last thing we need is another marginal buyer of corporate bonds. Why would the ECB want to get involved and how much unsecured risk would they want?’
EUR/GBP Gains on BoE Minutes
While the Euro spent much of Wednesday struggling against the US Dollar (EUR/USD) the common currency was able to advance by over 0.2% against the Pound.
The common currency rallied against its British rival as the Bank of England’s policy meeting minutes took on a dovish tone.
Although the Monetary Policy Committee voted 2:7 in favour of an interest rate increase, the central bank highlighted the detrimental impact a faltering Eurozone would have on UK growth and implied that the current inflationary outlook warranted keeping interest rates at record lows for longer.
As stated by forex strategist Ian Stannard; ‘There’s no sign of hawkishness picking up yet. That’s going to keep rate expectations pushed back for the time being and that is going to keep Sterling under pressure against the US Dollar.’
Euro Losses Forecast after Markit Reports
The Euro’s strength against the Pound could prove to be short lived if tomorrow’s Markit Manufacturing/Services/Composite PMI’s come in at the levels forecast.
Economists are anticipating that the output gauges for the Eurozone and its largest economies registered declines in September, with some of the measures falling below the 50 mark separating growth from contraction.
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7898
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.2657
UPDATE
The Euro to Pound Sterling exchange rate is currently trending in the region of 0.7896.
A mixed set of European economic data, which errs towards the positive, has seen the common currency strengthen against the Pound Sterling.
October’s preliminary figures for the French Composite, Manufacturing and Services PMIs failed to meet with expectations, as did the German Services PMI. However, the preliminary figures for the German Composite and Manufacturing PMIs, as well as the Eurozone Composite, Services and Manufacturing PMIs exceeded expectations.
Sterling movement will likely be initiated by the retail sales data due for publication on Thursday morning.
Euro Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,
,Pound Sterling,0.7898,
Euro,,US Dollar,1.2673,
Euro,,Canadian Dollar,1.4257,
Euro,,Australian Dollar,1.4435,
Euro,,New Zealand Dollar,1.5919,
US Dollar,,Euro ,0.7894,
Pound Sterling,,Euro,1.2661,
Canadian Dollar,,Euro,0.6955,
Australian Dollar,,Euro,0.6998,
New Zealand Dollar,,Euro,0.6276,
[/table]
