Mario Draghi made dovish comments last week after the European Central Bank (ECB) meeting. Despite inflation rising in December he has said that it is primarily being driven by a rise in energy prices, which he suggests may not be sustainable. It looks the ECB are in no hurry to take action with monetary policy by raising interest rates. With the elections approaching and most importantly Brexit around the corner these are two good reasons the ECB will be loathed to tinker with the system now.
Meanwhile Bank of England Governor Mark Carney has stated that the EU faces greater risks than Britain following Brexit and there is more likely to be a financial crisis in the EU. It highlights how delicate a situation the whole process of Brexit will be and how volatile the Euro is likely to become.
Data is light today with Purchasing Managers Index (PMI) for manufacturing and services at 9am. Expectation is for a small improvement although the Supreme Court ruling should be the main driving force for GBP/EUR.
Following on from Theresa May’s Lancaster House speech most EU leaders generally welcomed the clarity offered. There were also some mixed responses from the European press. One German newspaper Die Welt labelled the UK as “Little Britain” and suggested the Prime Minister is leading Britain into isolation. In an amusing exchange, Britain’s bestselling newspaper the Sun responded the following day with its front page: “Little Britain? We’ve got a simple message for the cheeky Germans at Die Welt. “Would the last country to leave the EU please turn out the lights.
The next European election takes place in the Netherlands in March and whilst normally there would be little interest, this time the round the whole world is watching to see if this is the next EU domino to fall, the Nexit. It all remains to be seen but as it stands Geert Wilders Freedom Party is expected to win the largest number of seats. However due to a number of parties taking considerable shares of the vote it means that coalition governments have become the norm in this country. There are three examples historically where the winning party has been locked out of power. The nature of Dutch politics makes this difficult to predict and a very tough battle for Geert Wilders to become Prime Minister, but not impossible.
Expect considerable volatility for the Euro as those polls could start to look interesting in the coming weeks.
Further movements for GBP/EUR may arise from todays Supreme Court outcome, so get in touch with your dedicated broker if you have a Euro buying or selling requirement on 01494 725 353. Alternatively, you can email me at email@example.com.
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