Mario Draghi announced no further interest rate cuts or QE during yesterdays interest rate decision. The Euro made further advances against Sterling as a result.
The European Central Bank held interest rates at record lows at 0% as widely expected and maintained the €80 billion monthly asset purchases until March 2017. The focus for this is to try and stimulate growth in a struggling European economy and push inflation higher. There was some expectation that Quantitative Easing (QE) may have been extended by an additional 6 months which did not materialise and as a result the Euro made strong gains. Pressure has been mounting that not enough is being done by the ECB to kick-start the economy.
The Euro could see some further weakness in the Autumn on any weak data releases. Any nod to QE would be Euro negative although the ECB seems reluctant to adjust now.
There are lots of political signals coming out of the Eurozone following Brexit but one thing is clear and that is the EU wish to move on with the divorce as quickly as possible. Donald Tusk’s visit to London yesterday and his comments that the ball is very much in Britain’s court amplifies my view that pressure is mounting within the Eurozone. The pending general elections in both France and Germany next year must surely be creating tensions and uncertainties and there should be major volatility for the Euro going forward. This comes at a time when British trade meetings are taking place to scope out future agreements with countries outside of the EU to include India and Australia.
It has been reported from the German Institute for Economic Research (DIW) that German economic growth is expected to almost halve in 2017 as a direct result of Brexit. For Germany, Britain is its third largest export market and already orders are beginning to stutter which is expected to continue into 2017. The DIW have suggested Brexit will cost Germany 0.3% of GDP next year as a result of Brexit, something that may have repercussions for the Euro.
Eurozone data is light today so eyes look to industrial production numbers, trade balance data and inflation figures next week. The inflation numbers are the ones to watch and any poor numbers here will put pressure on the ECB to take further action in the form of extending QE which would be Euro negative.
If you have a currency exchange requirement for Euros, now could be a good time to consider making a transfer. Speak to one of our traders on 01494 725 353.
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