EU data releases have so far this week been on the light side, however the European Central Bank meet this Thursday on the 25th July. While the current forecast is for the interest rate to remain unchanged, there is a chance that we could see an interest rate cut in an attempt to stabilise the EU economy.

 

Currency Pair% Change (Month)Difference on £200,000
GBPEUR0.7%€1,550

One of the reasons we could see an interest rate cut, is because Eurozone manufacturing PMI (Purchasing Managers Index) has been falling since October last year with the last reading in June at 47.6. A reading above 50 is seen as positive and below 50 as negative. This coupled with increased trade tension with the US and Brexit uncertainty, has increased worries that this could start causing problems in the wider economy in the EU.

The ECB (European Central Bank) has pledged to keep interest rates low until the first half of 2020 and Mario Draghi has indicated renewing quantitative easing to support the eurozone economy. This shows the fragility of the eurozone economy and possible preventative steps the EU are now taking to help protect the eurozone should the UK leave the EU.

Currency markets uncertain of Brexit developments

EU officials believe no-deal likely outcome

EU officials believe a no-deal Brexit is now the most likely outcome with speculation reported in the news that the EU are preparing a multi-billion pound aid package to support Ireland should the UK leave the EU with a no-deal. A senior EU official told The Times newspaper that they would “spend whatever was necessary” to support Ireland.

If Ireland is adversely affected, then we might see this take its toll on the euro due to the costs associated with supporting them. This would also have a negative impact on economic data in the eurozone putting further pressure on the ECB to engage in quantitative easing to stimulate the economy.

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