Some of the main headlines surrounding the Eurozone at the beginning of this week are centred around monetary policy in the bloc, with two key speeches tomorrow from the head of the European Central Bank, Mario Draghi and his Vice President, Luis de Guindos. De Guindos spoke briefly yesterday ahead of his speech on Wednesday, stating that the European Central Bank (ECB) is ready to act with all the instruments at their disposal to combat falling inflation, which could set the tone for later this week.
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With the chances of the US cutting interest rates looking more likely in recent weeks we have seen the euro make significant gains against the dollar, whilst Brexit uncertainties and the Tory leadership challenge in the UK have seen the single currency make further gains against the pound and testing the 1.12 support level.
In an article in Reuters yesterday, they reported that some senior sources within the ECB believed that the recent strength in the euro is harming the economy of the bloc, and therefore we may see hints towards a rate cut in the weeks to come in an attempt by the ECB to artificially weaken the currency.
Brexit uncertainty continues to have an impact on GBP/EUR exchange rates and the Conservative leadership battle is starting to cause concerns within the Eurozone.
Boris Johnson is arguably the favourite to replace Theresa May as PM following her resignation, but there are fears in Germany, the Eurozone’s largest economy, that if appointed, he could cause chaos and further distance the UK from the EU.
Johnson has made it clear that he will be aiming to ensure that the UK retain the £39bn withdrawal fee demanded by the EU, and this has also caused France President Emanuel Macron to have his say on the matter. Macron threatened that there would be ‘consequences’ if the UK refused to pay the withdrawal fee, and this could see tensions rise in future negotiations which could have an impact on exchange rate volatility.
With the final candidates for Number 10 now announced and the campaigns due to begin shortly, it is highly likely that developments in the next month or so could cause volatility on GBP/EUR exchange rates.
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