The Euro to Pound Sterling (EUR/GBP) exchange rate advanced by more than 0.3% on Tuesday in response to comments issued by the European Central Bank chief.
In recent weeks there has been debate over whether the central bank will bite the bullet and unleash full-scale quantitative easing measures to help shore up the Eurozone’s recovery and the comparative failure of last week’s Targeted Long-Term Refinancing Operations added fuel to the fire.
While one ECB official indicated that the softer Euro would make extra stimulus unnecessary, ECB President Mario Draghi stressed his commitment to supporting the 18-nation currency bloc.
According to Draghi; ‘Outright purchases will increase the size of the ECB’s balance sheet, but the additional risk exposure will be limited. We stand ready to use additional unconventional instruments within our mandate, and alter the size and/or the composition of our unconventional interventions should it become necessary.’
Such a revision may prove essential as Draghi’s outlook for the Eurozone was far from cheerful, with him stating that ‘Unacceptably high unemployment and continued weak credit growth are likely to curb the strength of the recovery. The risks surrounding the expected expansion are clearly on the downside.’
The Euro to Pound Sterling (EUR/GBP) exchange rate hit a high of 0.7890
Gains in the Euro to Pound exchange rate were also the result of the UK’s public finance figures falling short of forecasts and the BBA Loans for House Purchase report detailing a sizable reduction in loans in August.
The Eurozone, meanwhile, published a mixed bag of figures, with Germany’s Services and Composite PMI gauges coming in above expected levels and the nation’s manufacturing gauge showing a sharper-than-predicted decline.
All three of the Eurozone’s PMI measures came in below estimate, although remaining above the 50 mark separating growth from contraction.
As stated by Markit economist Chris Williamson; ‘The survey paints a picture of ongoing malaise in the Eurozone economy. With growth of output and demand slowing, employment once again failed to show any meaningful increase. Such torpor meant prices continued to fall as firms fought for customers, which will inevitably heighten concerns that the region is facing deflation. For a central bank hoping that the economic data flow will start to improve, the ECB will be disappointed by the ongoing weakness of the PMI.’
Meanwhile, the Euro to US Dollar exchange rate was able to strengthen thanks to some surprising comments from Federal Reserve Bank of New York President William Dudley.
In a week which sees several prominent Fed officials scheduled to speak, Dudley kicked off proceedings by asserting that the US Dollar’s strength could undermine the US economic recovery.
Dudley asserted; ‘If the Dollar were to strengthen a lot, it would have consequences for growth. We would have poorer trade performance, less exports, more imports. And if the Dollar were to appreciate a lot, it would tend to dampen inflation. So it would make it harder to achieve our two objectives. So obviously we would take that into account.’
The US Dollar also came under pressure as a result of yesterday’s disappointing US existing home sales figures.
The EUR/USD pairing hit a low of 1.2840.
Today’s US Manufacturing PMI could help the US Dollar recover losses, but a below-forecast figure would see the EUR/USD pairing continue trending higher.
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7867
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.2875
Euro Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,
,Pound Sterling,0.7875,
Euro,,US Dollar,1.2882,
Euro,,Canadian Dollar,1.4189,
Euro,,Australian Dollar,1.4481,
Euro,,New Zealand Dollar,1.5814,
US Dollar,,Euro ,0.7762,
Pound Sterling,,Euro,1.2693,
Canadian Dollar,,Euro,0.7043,
Australian Dollar,,Euro,0.6900,
New Zealand Dollar,,Euro,0.6312,
[/table]
