Today's Euro exchange rate report looks at some of the factors that are likely to affect exchange rates this week with the recent news coming from the Eurozone.

Banking stress tests not so bad

The big news over the weekend was the results of the European Banking Stress Tests which have generally eased some of the more immediate fears in the European banking sector. The big losers were Italy’s Monte dei Paschi which had already announced it would be offloading €9bn of bad loans. The tests were criticised as not being as tough as they could be although they did reflect a stronger banking sector which is welcome. The results helped contribute to some uncertainty on financial markets but it seems in general the European Banking sector has passed this test.

Growth concerns balanced by rising Inflation

Friday raised some worrying economic data from the Eurozone with French Gross Domestic Product stalling and overall Eurozone GDP halving. At the same time Unemployment which has been steadily declining since 2013 held steady and Inflation was the surprise, rising to 0.2%. The big question is what kind of impact will Brexit have had on the Eurozone and the Euro? Only time will tell but if growth is falling longer term the ECB might need to look at measures to help boost the Eurozone economy, all of which would weaken the Euro.

Inflation rising is good news for the Euro since falling Inflation had for the most part of 2015-2016 been falling and triggered a economic response by the European Central Bank (ECB) which weakened the Euro. Today sees the release of the latest Eurozone Manufacturing PMI (Purchasing Managers Index) then Wednesday Retail Sales and Friday German factory orders. I expect sterling movements to be the main driver on GBPEUR rates with the all-important Bank of England decision on Thursday.

Euro sellers in the driving seat but for how long?

The Euro remains at close to the best rates against the Pound in 3 years presenting an excellent opportunity for clients selling Euros for Pounds. Whilst there is a temptation to hang on for further gains some of the bolder predictions on GBPEUR seem less likely now that the UK has a new PM and the worst economic fears fail to materialise. This Thursday’s Bank of England Interest Rate decision could be a very good opportunity for any Euro sellers looking for better rates and I would suggest taking advantage of any gains.

Thank you for reading my Euro exchange rate report, if you have any questions about Euro rates I would be more than happy to discuss them – you can contact me directly at jmw@currencies.co.uk.

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