The euro reached its lowest level against the pound yesterday in 4 weeks, pushing GBP/EUR interbank exchange rates to highs of 1.12402, following from disappointing comments from the European Central Bank on the current state of the European economy.

Currency Pair% Change (Month)Difference on £200,000
GBPEUR1.6%€3,630

The European Central Bank (ECB) announced its latest Interest Rate decision yesterday and confirmed to keep rates on hold at 0% as had been widely expected. However, ECB President Mario Draghi said in his statement following the announcement, that the central bank sees rates either at present or lower levels in 2020, contrary to its previous pledge to keep rates on hold until next June. The door was also opened to looking at Quantitative Easing options including restarting its huge bond buying programme which was halted at the end of last year.

Draghi said that ‘this outlook is getting worse and worse’ and suggested that any kind of rebound in the second half of this year is ‘less likely’, causing the euro movement against its major currency pairings. Draghi has just 3 months left of an 8 year term as President of the ECB, before Christine Lagarde takes over on 31st October, providing him with only a few opportunities to end on a high note before handing over the reins.

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Could there be another Spanish election on the horizon?

It was announced yesterday that the Spanish Parliament has rejected Pedro Sanchez’s call to remain as Prime Minister for another term, after failing to strike a coalition deal with the far-left Unidas Podemos party after they had made ‘unacceptable demands’. This now opens up the potential for a national election on 10th November, the fourth in 4 years, if Sanchez doesn’t either back down on his principles, or if Parliament do not support him. Historically, general elections have the capacity to cause volatility for the currency in question, as uncertainty is not generally welcomed by investors. As Spain is the Eurozone’s fourth largest economy, if an election were to be called, we could see the euro weaken as a result.

At this point it is not clear what Sanchez’s next move will be, however you may wish to keep in touch with your Account Manager here at FCD who can keep you updated with the latest developments.

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