Inflation within the Eurozone has been bordering on 0% for 2 years now, is Draghis stimulus working?

German & Eurozone Inflation

The European Central Bank announced on Thursday that they would again be keeping interest rates on hold at historic lows of 0%.ECB –president Mario Draghi also confirmed that he would be keeping the current stimulus of €80bn per month until Spring 2017. This helped the single currency to strengthen vs Sterling but this week’s inflation data for Germany and the Eurozone is likely to cause some volatility between Sterling and the Euro.

German inflation is published tomorrow morning with expectations for 0.3% year on year and as the Eurozone’s economic powerhouse this could cause a possible change in policy longer term. On Thursday the Eurozone announces the Consumer Price index and again this could highlight further problems for the Euro if the data continues to come out very low.

Indeed, with inflation at just 0.2% it is clear that the Eurozone’s current monetary policy has not yet had the desired effect. Therefore, is the figures come out lower than expected this could put pressure on the central bank to look at changing policy at next month’s meeting and this could cause the Euro to weaken against Sterling.

If you’re worried about what may happen in the next few weeks you may wish to consider buying a forward contract, which allows you to fix an exchange rate for a future date for a small deposit.

Eurozone Unemployment

Tomorrow we also have the release of Eurozone unemployment data as well as a speech by ECB president Mario Draghi. The president has been rather bullish and confident about the Eurozone’s economy but it will be interesting him comment about unemployment if it shows a fall and he’s also likely to be quizzed about the recent interest rate decision.

To me there is still a lot of uncertainty on both sides of the Channel owing to the vote by the UK to leave the European Union and it is important to remember that it is not just a British issue. With France and Germany due to go to the polls next year and the lack of transparency as to when/if Article 50 may be triggered this is likely to cause pressure for both Sterling as well as the Euro.

A number of key data releases this week for the Eurozone could provide further movements for GBPEUR, if youd like to discuss a currency requirement ahead of these events, call us on 01494 725 353 and speak to one of our friendly team.


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