Comments from European Central Bank (ECB) President Mario Draghi prompted the Euro to slump sharply on Thursday morning.
Markets were discouraged by the more dovish tone struck by Draghi, with any hopes of the ECB tapering its quantitative easing program in the near future banished.
Draghi noted:
‘We have not yet seen sufficient evidence to materially alter our assessment of the inflation outlook – which remains conditional on a very substantial degree of monetary accommodation. Hence a reassessment of the current monetary policy stance is not warranted at this stage.’
As the central bank looks set to maintain its neutral bias for the foreseeable future, in spite of German dissatisfaction, investors saw little reason to favour the single currency.
If other members of the ECB executive board back up this more cautious view on monetary policy then EUR exchange rates are likely to remain muted.
Even so, some support for the Euro could come on the back of Friday’s raft of German trade and production data.
Further signs of resilience in the Eurozone’s powerhouse economy could bolster EUR confidence, particularly if exports have picked up on the month.
However, further downside pressure may be in store for the common currency if worries over Greece and the much-delayed conclusion to its latest bailout review mount.
While Eurogroup finance ministers are not expected to be in a position to sign off on the next tranche of bailout funds at their April meeting this could still provoke volatility for the Euro.
Following the stronger-than-expected UK services PMI demand for the Pound began to flag somewhat, with the economy still facing considerable uncertainty in the coming months.
This saw the Euro Pound exchange rate holding onto a narrow uptrend as investors engaged in a round of profit taking against Sterling.
Confidence in the Pound is likely to remain jittery ahead of the weekend as Bank of England (BoE) Governor Mark Carney looks set to maintain a neutral to dovish outlook on interest rates.
If Carney talks down the prospect of rates rising from their current historical lows then the EUR GBP exchange rate could make some strong gains.
Demand for the US Dollar, meanwhile, strengthened on the back of March’s Federal Open Market Committee (FOMC) meeting minutes.
Policymakers proved rather more hawkish than anticipated, having engaged in a prolonged discussion over plans to start shrinking the Fed’s balance sheet before the end of the year.
As a result the EUR USD exchange rate slumped sharply, with markets discouraged by the prospect of further policy divergence between the Fed and the ECB.
A strong showing from March’s labour market report could shore up the ‘Greenback’ further, with a bullish headline figure likely to increase the odds of the Fed hiking interest rates again sooner rather than later.
Current EUR GBP USD Interbank Exchange Rates
At the time of writing, the Euro Pound exchange rate was trending narrowly at 0.85. Meanwhile, the Euro US Dollar exchange rate was slumped in the region of 1.06.