This Euro currency report discusses the possible impact of this morning Eurozone inflation figures and looks at the affect of recent comments and poor UK inflation figures on the GBP/EUR exchange rate.
This morning the Eurozone are set to release their latest Consumer Price Index (inflation) numbers at 10:00am. The consensus is for this month’s release to be the same as previous at -0.2% and therefore still in deflation. The ECB cut interest rates and increased the money supply entering the European countries in March in a bid to improve worrying inflation levels. If we see a further fall there’s an argument to suggest the ECB will have to act once more and further cuts to interest rates could occur, which would mean interest rates would be in negative territory.
Yesterday morning we saw GBP/EUR spike into the 1.28s off the back of ECB member Jens Weidmann comments related to monetary policy in the Eurozone. He believes monetary and fiscal policy is blurred and doesn’t give clear direction. Further to this the Asian stock market rallied yesterday morning off the back of oil prices hitting a 6th month high. I believe this resulted in carry traders selling their Euro positions and reinvested in Asia and commodity currencies. (A carry trade is a strategy in which an investor borrows money at a low interest rate, the Eurozone is known for this as interest rates are 0 and then reinvests the capital in an asset that is likely to provide a higher return). However, the GBP/EUR exchange rate fell shortly after due to poor UK inflation.
Looking forward the UK referendum, I believe this event is going to start to weigh down on the Pound as there is only 6 weeks until judgement day. If you have Euros to buy before June 23rd trading sooner rather than later may be wise.
Thank you for reading my Euro rate update, if you have any questions about Euro exchange rates or the upcoming EU Referendum I would be happy to discuss them with you – you can contact me with any queries at firstname.lastname@example.org, or by calling 0044 1494 725353.
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