The Pound (GBP) continued to advance against the Euro (EUR) on Wednesday as economic data out of Germany raised concerns over the strength of the wider Eurozone economy.
Earlier in the session the Euro received some support after European Central Bank President Mario Draghi reiterated his pledge that the bank will do all it can to prevent deflation taking root in the heart of the 18-member currency bloc.
‘Monetary policy will remain accommodating for a long time and I can tell you that the Governing Council is unanimous in committing itself to using the tools at its disposal to bring inflation back to just fewer than 2%. Interest rates will remain low because they can’t get much lower,’ Draghi in a radio interview.
The comments increased speculation that the ECB could introduce more monetary stimulus measures, which could include a quantitative easing programme similar to those used by the USA, UK and Japan.
The Euro then slid back towards a two-year low against the Pound after a report released in Germany showed that business confidence in the Eurozone’s largest economy slumped yet again this month as concerns over the Ukraine crisis and concerns over the Chinese economy weighed upon sentiment.
The IFO economic institute’s business climate index fell to 104.7 from 106.3 in August the lowest level recorded since April 2013 and much weaker than economists’ forecasts for 105.7. The disappointing data added to the previous sessions weaker than forecast manufacturing growth figures.
‘We expect the German economy to bounce back in Q3, led by investment, which was particularly weak in Q2 as much of the demand had been carried forward into Q1 due to unseasonably good weather (the opposite of the US). In spite of the expected bounce-back this quarter, we do not expect the German economy to grow at anything more than a moderate rate in the coming quarters – as also suggested by IFO. We look for GDP growth of 1.4% this year and around 1.5% next year (below the current consensus expectation of 1.8%),’ said Mads Koefoed, head of macro strategy at Saxo Bank.
Pound to Euro exchange rate forecast
The Pound was continuing to find support from last week’s Scottish Referendum result but further gains could be restrained on increasing expectations that the UK parliament will be recalled on Friday so that MPs can vote to decide whether the nation joins the USA, France and other allies in launching bombing raids against the Islamic State.
UPDATE
Yesterday’s concerning German IFO business confidence measures left the Euro trending in a softer position against the majority of its peers.
The GBP/EUR exchange rate remained trading close to a two-year high on Thursday having advanced by 0.3% from the day’s opening levels.
Although data for the Eurozone is lacking today, the Pound to Euro exchange rate could experience volatility as a result of the UK’s news – in particular a speech to be given by Bank of England Governor Mark Carney in Wales.
Euro Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,
,US Dollar,1.2843 ,
Euro,, Pound Sterling,0.7832 ,
Euro,,Australian Dollar,1.4480 ,
Euro,,Canadian Dollar,1.4224 ,
Pound Sterling,,Euro,1.2766 ,
US Dollar,,Euro,0.7786 ,
[/table]
