The ECB's decision to keep interest rates and QE on hold echoes the Bank of Englands policy giving the Euro an advantage yesterday.
Although the Pound struggled yesterday following the slowest growth in Retail sales figures in 6 months, we did see the Euro come under pressure during and after Mario Draghi’s press conference and the ECB’s interest rate decision. The ECB kept interest rates and their current levels of Quantitative Easing on hold, but Draghi did hint that they were prepared to take further action if necessary to boost economic growth and inflation.
Interest rates are currently at 0% and the bank’s overnight deposit rate is at -0.4% in an attempt to encourage the banks to lend to consumers, so there is arguable very little room for manoeuver going forward.
With rates so low already, any cuts in the future could have the potential to weaken the Euro significantly. That being said however, the last time the ECB cut interest rates the Euro actually benefitted, so we could be set for market volatility and swings in the Euros value in the future. In my opinion, if the ECB does act, which probably won’t be until September at the latest so that they can judge the impact of the Brexit, it will be an increase to their quantitative easing programme, which currently is set to continue until March 2017.
Next week on Friday we will see GDP figures for Q2 of this year and inflation figures for July. With the uncertainty that the Brexit has brought to the market, these figures will give us a good insight as to how well the Eurozone economy has coped in the wake of the result. This could create volatility for the value of the Euro, so anyone buying or selling Euros should keep in touch with their account manager here who can keep them informed of all the latest market movement and therefore help you time your transaction at the best possible level.
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