EUR/GBP Declines on ECB Stimulus Expectations
On Tuesday the Euro to Pound (EUR/GBP) exchange rate dropped by over 0.4% as investors bet that the European Central Bank will attempt to shore up the Eurozone with additional stimulus measures.
For a second day, the ECB purchased covered bonds and reports emerged that the central bank is on the verge of buying corporate debt.
Expectations that the German slowdown and persistently low levels of inflation in the currency bloc will push the ECB into starting quantitative easing measures are growing and are keeping the Euro depressed.
In the opinion of one global strategist; ‘We’ll eventually get quantitative easing from the ECB. Whether he [ECB President Mario Draghi] buys government bonds or corporate bonds or asset-backed securities or gets rates more negative than they are, it’s not clear that any of that’s going to make bank lending pick up.’
The Pound managed to advance on the common currency even as the UK’s public finance data disappointed.
BoE Meeting Minutes, UK GDP Ahead
While Sterling was supported by the expectation that tomorrow’s Bank of England meeting minutes will confirm that the Monetary Policy Committee was split on the subject of interest rate increases, the prospect of slowing growth limited Pound gains.
Friday will see the publication of the UK’s third quarter growth data, and while the nation is expected to post another quarter of expansion, the pace may have slowed.
Quarter-on-quarter growth of 0.7% has been forecast for the third quarter of the year. This would be down from expansion of 0.9% in the second quarter and would support the argument in favour of leaving the benchmark interest rate at record lows for longer.
Economist Peter Dixon noted; ‘The forces acting against a rate hike are mounting. It’s starting to look like quite a sound move to have refrained from a rate hike and resisted the firing calls back in the summer.’
Eurozone/German Manufacturing Slowed
However, even if the UK’s growth report does register a slower rate of expansion, the EUR/GBP exchange rate could still end the week trending lower.
The Euro to Pound pairing could tumble on Thursday if the Markit Manufacturing/Services PMIs scheduled for publication from the Eurozone and Germany decline as forecast.
It is expected that the measures of manufacturing activity for France, Germany and the Eurozone as a whole came in below the 50 mark separating growth from contraction in October. The Services PMI gauges are also forecast to register declines.
If that proves to be the case it would compound fears that the Eurozone is on the verge of a triple-dip recession and could push the Euro lower against several of its most traded currency counterparts.
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7914
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.2631
UPDATE
The Euro to Pound Sterling exchange rate is currently trending in the region of 0.7896.
As traders await the Bank of England minutes due for publication later on Wednesday morning, the Pound is holding its ground against the majority of its most traded currency competitors.
With the European Central Bank looking likely to employ yet more stimulus measures to sure up the flagging Eurozone economy, the single currency is depreciating against most of its major peers.
Euro Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,
,Pound Sterling,0.7914,
Euro,,US Dollar,1.2739,
Euro,,Canadian Dollar,1.4372,
Euro,,Australian Dollar,1.4561,
Euro,,New Zealand Dollar,1.6060,
US Dollar,,Euro ,0.7846,
Pound Sterling,,Euro,1.2631,
Canadian Dollar,,Euro,0.6955,
Australian Dollar,,Euro,0.6866,
New Zealand Dollar,,Euro,0.6222,
[/table]
