Euro to Pound Exchange Rate on Track to Fall amid European Central Bank Dovishness
Despite the European Central Bank’s (ECB) surprisingly dovish tone during its policy decision yesterday, the Euro to Pound Sterling (EUR/GBP) exchange rate has rebounded from its worst weekly levels today thanks to fresh Pound (GBP) weakness.
Overall, the Euro’s (EUR) weakness this week means EUR/GBP is on track to end the week lower.
EUR/GBP opened the week at the level of 0.8606 and fluctuated throughout the week. The pair touched on a weekly high of 0.8641 earlier in the week but a low of 0.8546 on Thursday evening.
At the time of writing on Friday, EUR/GBP had put in a solid rebound and was trending near the level of 0.8582.
The biggest movement of the week came on Thursday, as the European Central Bank announced fresh stimulus plans for the Eurozone due to the slowing economic outlook.
Euro (EUR) Exchange Rates Steady Following ECB-Inspired Slump
On Thursday, the Euro plummeted as investors reacted to the European Central Bank’s (ECB) March policy decision. The bank’s tone was more dovish than investors expected.
As was widely expected, the bank left Eurozone monetary policy frozen.
But the bank surprised markets by not only saying it would hold off from hiking Eurozone interest rates until at least 2020, but also announcing a fresh set of economic stimulus measures to limit the potential damage of the economic slowdown.
The fresh stimulus came in the form of cheap bank loans. The ECB also cut its economic growth forecasts for the Eurozone.
However, some analysts were impressed that the bank had been proactive with the new stimulus measures.
As the bank’s actions were perceived as being ahead of the curve, the Euro’s losses were limited. Investors continued to digest the news today and the Euro rebounded slightly.
Pound (GBP) Exchange Rates Remain Weak as Hopes for Brexit Deal Fade
The UK and EU have been holding reopened negotiations over the agreed Brexit deal in recent weeks. The UK government had hoped that it would be able to renegotiate the issue of the Irish backstop to make it more appealing to MPs.
However, reports have indicated that the EU is not budging on the matter and no major breakthrough is expected before next week’s major UK Parliament Brexit vote.
During the previous Parliament Brexit vote, the government’s deal was soundly defeated. As the deal has not changed since then, there is doubt that MPs will have changed their minds. As a result, investors generally expect another defeat for the government.
UK Prime Minister Theresa May is set to continue conversations with the EU over the weekend, but she is not expected to travel to the EU.
This has further lessened the perceived chances of any meaningful changes to the bill, and weighed further on Sterling’s late-week performance.
Euro to Pound (EUR/GBP) Exchange Rate Could Jolt on Parliament’s Brexit Vote
The coming week is likely to be highly influential for the Euro to Pound exchange rate. Not only is key Eurozone inflation rate data due to be published, but the UK government will hold its highly anticipated Parliament vote on Brexit.
The biggest event of the week will certainly be Tuesday’s Parliament Brexit vote, which could decide how the Brexit process will unfold.
For example, if enough MPs support the bill for it to pass, it would confirm a soft Brexit and the Pound would surge.
However, amid a lack of perceived support for the Brexit deal domestically, the Pound could be in for losses instead.
Even if MPs take the opportunity to formally delay the Brexit process, analysts will remain anxious that this amounts to ‘kicking the can’. It may offer Sterling a little support but the ultimate outcome of Brexit would remain uncertain.
Continued reaction to the European Central Bank’s (ECB) policy decision will drive the Euro early in the week.
However, Eurozone industrial production and inflation figures due from Wednesday through Friday could also be highly influential to the Euro to Pound (EUR/GBP) exchange rate.