EUR/GBP and EUR/USD Exchange Rates Weaker Today as ECB Holds Interest Rates

The Euro exchange rate was little changed against the Pound (GBP) and US Dollar (USD) after the European Central Bank (ECB) kept interest rates at 0.15%.

In a press conference, which followed the ECB’s interest rate decision, Bank President Mario Draghi said that due to the Eurozone’s uneven economic recovery and poor inflation outlook will mean that interest rates will remain low for an extended period.

The rate decision was widely expected by economists as the ECB has little room to manoeuvre with rates already threatening to dip into negative territory.

Inflation across the Eurozone slowed to 0.4% in July from 0.5% in June and was well below the 2% target set by the central bank.

“The key ECB interest rates would remain at the present level for an extended period of time in view of the current outlook for inflation,” Said ECB President Mario Draghi.

Earlier in the session the Euro came under pressure after data out of Germany, (the Eurozone’s largest economy) showed that industrial output increased by just 0.3% in June, well below economist expectations for a rise of 1.3%.

The sharp decline is thought to be as a direct result of European Union sanctions being imposed against Russia. Germany is Russia’s largest European trading partner.

Concerns over escalating tensions between the West and Russia are also weighing upon demand for the single currency.

With up to 20,000 combat troops massing on Ukraine’s border, NATO has warned that Russia could launch an invasion under the guise of a ‘humanitarian mission’ within days.

In retaliation against the EU and other Western nations, Russia announced an import ban on goods out of those countries.

‘We’re still assessing the possible impact of sanctions on the euro area economy. We see risks especially from the price of energy. It is difficult to define what are the options in the future, especially if the conflict were to escalate. Our monetary policy stance will remain accommodative,’ said Draghi.

He also added that the bank could introduce quantitative easing if the regions medium-term outlook changes.

Sterling could make some gains against the Euro on Friday if the latest UK balance of trade data comes in positively. The single currency meanwhile could come under pressure if reports out of Germany and France come in below market expectations.

The US Dollar made gains against the Euro and other major peers on Thursday after data released by the Washington based Labour Department showed that the number of Americans claiming unemployment benefits fell unexpectedly last week to an 8 ½ year low.