EU Interest Rate decision and Monetary Policy Statement

Yesterday saw the European Central Bank (ECB) interest rate decision as I expected there was no movement. Mario Draghi the Head of the ECB, may well like to increase stimulus into the struggling Eurozone economy, but after already implementing a rate cut and increasing stimulus into the quantitative easing program it would make him appear to be throwing the kitchen sink at what is proving to be a very difficult problem to solve. He also stated after these changes in monetary policy there would be no more stimulus for the foreseeable future. It is important to remember that when further stimulus was added damage to Euro value was limited by this statement. I was extremely surprised to see the market react more on a banker’s word than changes to monetary policy.

To increase further stimulus at this juncture I think would damage his credibility leaving him looking like a monkey with a rubik’s cube. He did mention at yesterday’s monetary policy statement that inflation is still an issue so it would not surprise me to see him increase stimulus later in the year. His hand may be forced to change monetary policy if the UK were to exit the EU.

Yesterday saw the release of Producer Price Index (PPI) figures, they came in below expectations and the Euro weakened against Sterling as a result. Today at 09.00 will see the release of Eurozone Services Purchase Managers Index. This is a measure of the condition of sales and employment. Also at 09.00 is Eurozone retails sales figures, these both give an indication as to the health of an economy and I expect to see a decline in both data releases which could cause the Euro to weaken.

The most important factor in any GBP/EUR trade is the EU referendum. A change in the polls has the power to cause large movements on GBP/EUR as displayed by the recent ICM/Guardian poll which put the Leave camp in front and saw the pound lose value against the euro. It would be wise to get in touch with your broker to come up with an individual trading strategy to try and maximise your return.

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