The ECB continue to fight off low inflation with Quantitative Easing. With inflation close to 0% for 2 years, could further Stimulus be on the table today?

Should Euro sellers hold on?

After such a strong run for the EUR it is no real surprise to see a slight realignment against Sterling, having traded close to a three year high for a number of months. The Euro, as many will know, has benefited from the downturn in the UK economy following our decision to exit the EU. Despite our reluctance to trigger Article 50 which will start the withdrawal process, although when this will occur is still unclear.

The uncertainty this decision has created was the main driver behind the EUR recent gains and therefore, I always felt the highs it reached were slightly fabricated levels. This was due to the fact that it didn’t achieve these highs through overriding investor confidence in the EUR but a complete lack of confidence in the UK economy and ultimately the Pound.

Sterling has made gains over the past week, following a run of strong economic data as eluded to earlier in this report. This has led investors to believe that we may now avoid the recession many though the UK would fall into around the turn of the year, and this in turn may cause the Bank of England (BoE) to reconsider a further interest rate cut in the UK. Whilst it is unlikely that Sterling’s value will soar against the Euro whilst the UK continues to remain in a state of economic limbo, it is likely that the Pound has now found a foothold and the recent highs for the EUR may now be resided to history.

How will the ECB react to the Euros recent improvement?

We also need to consider that the European Central Bank (ECB) are likely to try and control the value of the Euro, in order to keep their export industry viable. A strong EUR is fantastic for those clients looking to move their money back to GBP but it does little for the overall Eurozone economy, which is heavily reliant on the export of its goods and services to the UK. Personally I would be looking to protect any EUR positions and avoid further losses with one of our forward contracts, which allows you to secure an exchange rate ahead of a future trade.

Looking at the market data, todays Eurozone interest rate decision is likely to be the focus for investors. Whilst rates are likely to be kept on hold, it is the subsequent monetary policy statement, which will give us the greatest insight into the ECB’s thinking. Any bullish or dovish statements are likely to cause additional volatility for EUR exchange rates, so any clients with a EUR requirement should be keeping in close contact with their personal currency broker ahead of this key economic release.

The ECB may implement further QE today which could impact the value of the Euro. Give us a call today on 01494 725 353 if you have an upcoming currency transfer youd like to discuss.

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