The Euro has come under pressure from a bullish pound of late, as UK data continues to impress and the Bank of England edge ever closer to raising interest rates. The latest UK Services PMI is published on Thursday and once again this is expected to be good so should provide more support for sterling. Record house prices overnight have also given the pound an extra push.
So what is in store for the Euro? Well EU unemployment levels published yesterday actually held steady despite some forecasters expecting an increase however this is not enough to provide a big boost for the single currency after a lot of other recent indicators were lower than anticipated. A lot of focus will be placed on today’s EU GDP revisions to see if there is any improvement in the economy, and the Euro may strenghthen or weaken according to how strong these figures are. If they are revised down for any reason then I think we could expect another day of Euro weakness.
The major focus though is bound to be the ECB interest rate decision and press conference on Thursday. Last month the ECB cut interest rates to a record low, and introduced a negative deposit rate for banks to store money with the ECB overnight (meaning they would be more likely to lend this money rather than hoard it and pay charges). This saw a lot of Euro weakness and the door is still wide open at this stage as to whether the ECB will feel like they need to take further action.
I suspect the current data has done little to suggest Europe has turned a corner, but it is still too early to judge what effect, if any, the recent rate cut has had on the Eurozone economy. To this end I think they will take a “wait and see” approach but that is not to say there won’t be any market volatility as there is still the press conference. This may contain clues or indications of future policy – if Draghi suggests all is well and further action at this stage is unwarranted we could get Euro strength, but anything hinting towards further intervention unless data improves could create another great buying opportunity on GBP EUR.
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