ECB takes centre stage
26 July, 2019
The last few days have seen some much-desired movement in GBP/EUR exchange rates, with rates having recovered 2 cents peak to peak by lunchtime yesterday. You could be forgiven for thinking that the market has been buoyed by the announcement of Boris Johnson as prime minister, and his infectious/blind optimism towards resolving Brexit, however, it is important to recognise that recent gains against the Euro have been largely down to movements in the Euro itself rather than any change of fortunes or forecasts for Sterling.
Market analysts have been anticipating further stimulus from the ECB following comments from Mario Draghi that “the risks in the euro area growth outlook remain tilted to the downside”. With no changes to policy at yesterday’s meeting, the Euro initially dropped to its lowest level against the dollar since May 2017, before aggressively recovering once Draghi began his speech. During this speech, Mario Draghi indicated that the ECB was readying a further stimulus package for the meeting in September, with markets now expecting 85% likelihood of a rate cut alongside further Quantitative easing in an attempt to boost spending and growth in the Eurozone during the months ahead. This was no such good news for Euro buyers as GBP/EUR very quickly reversed its morning gains and signalled that we could well have already seen the peak of this correction, with rates now at risk again of retesting the recent lows. GBP/USD, however, gives a truer reflection of the current uncertainty with rates at their lowest levels for over 2 years and trading sideways within just a 1% range over the last month.
Today the focus switches across the pond to the US Dollar again, with the first Q2 growth readings to be announced at 1:30 pm. Annual growth in the US is expected to drop from 3.1% to just 1.8% with the latest figures. On the UK side of things, we can expect very little in the next week as the end of the month is absent of any eco stats and parliament are now officially on summer recess until September 3rd. Once Brexit is back on the agenda in September, it is anyone’s guess as to what will happen with rates with Boris at the helm of the Brexit ship, and showing little sign of steering it to safety.