In today’s Euro rate prediction, we look at the backdrop that the Eurozone is currently experiencing its worst growth since 2014.
The Euro, although still looking good against Sterling, could be in for a rough year. Mario Draghi, the head of the European Central Bank (ECB) has tried to ease investor concerns by lauding the current impressive employment figures in the bloc.
However, there are serious concerns. Germany, the engine room of the Eurozone has just narrowly avoided recession. Also, Italy has just entered a recession.
Italy’s growth figures were down by -0.2% in the final quarter of 2018 following a -0.1% decline in the third quarter. Italy’s debt is now second only to Greece. Greece, another huge economic problem for the Eurozone, has seemingly been swept under the carpet.
How will Eurozone cope without quantitative easing?
There are ongoing trade wars which threaten the global economy. In addition, the ECB have just put an end to Quantitative Easing (QE).
QE is essentially pumping money into an economy in order to stimulate growth, The ECB had been pumping upward of €60 million per month into the bloc, in an effort to stimulate growth.
QE has always been a controversial form of monetary policy, as it amounts to a huge amount of debt and the impact can be limited. With growth being the desired result, it seems the latest QE plan has failed.
Current growth data in the bloc shows the lowest growth figures since 2014. It will be interesting to see how the Eurozone copes without QE, which ended in December.
Pound v Euro forecast: Sterling remains fragile
If it were not for the lack of clarity surrounding Brexit, I think we would be seeing the Pound making gains against the Euro. Unfortunately though, Sterling remains fragile.
UK Prime Minister Theresa May is in a very weak position to negotiate. Parliament has stated that it is willing to give Mrs. May’s deal the O.K, provided she gets certain concessions. However, Mrs. May still has to gain these concessions from Brussels, which will be no easy task.
It is important to remember that Mrs. May decided to postpone the first vote in Parliament on her deal. This is because it was common knowledge that MPs were unhappy with the deal in its current form.
Mrs. May then went back to Brussels and was stonewalled. European Commission President, Jean Claude Junker, has stated on several occasions that there will be no changes to the current deal. Essentially, it is take it or leave it.
Best time to buy euros?
The reason for Sterling’s recent spike was due to the dropping probability of a “No Deal” scenario. Morgan Stanley give less than a 5% chance that a “No Deal” situation will occur. “No Deal” is May’s only form of ammunition. With this scenario now less likely than in December, she stands less of a chance of gaining the concessions required.
Many are of the opinion that we may only get a deal at the 11th hour. This is a risky business, considering these are the most important negotiations for the UK in over 50 years.
The other option is an extension while terms are hammered out. An extension could well be beneficial to the Pound. This is because the extended time period would help get deals in place, and take the pressure off getting something in place by 29th March.
Sterling will remain fragile until we get some form of clarity on Brexit.
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