Euro Gaining Traction Against Pound

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We saw sterling make traction against the euro last week and at the beginning of this week, but those gains are slowing down now ahead of the key meeting of the Bank of England on Thursday, when a decision on interest rates is due. However, against the dollar the euro also slipped yesterday morning, but managed to claw its losses back in the afternoon following some positive statistics on business expectations from the EU’s biggest member, Germany.

Germany Slowing Down Euro Growth

The euro fell last week following disappointing statistics coming out of Germany, showing that the economy has grown at its slowest pace since the financial crash. However, additional data released yesterday bumped the euro up somewhat, with economic expectations in Germany jumping to their highest levels since 2015.

There have been signs of recovery in the eurozone of late, but overall it has been mixed, and not giving investors that much needed confidence to believe that the bloc will perform well over the next 12 months.

Pound Waits for Interest Rate Decision

Meanwhile, what will really boost the euro against its competitors will be whether the Bank of England decides to cut interest rates on Thursday. The markets predict there is a 50% chance of a cut, which means that currencies will probably display some volatility regardless of what happens.

Normally, in foreign exchange markets, a currency drops when its central bank slashes interest rates, and makes gains when the rates rise. However, in this rather special case, it is unclear what will happen, so the markets cannot clearly predict the outcome of Thursday’s meeting. However, given there is still so much uncertainty with the likes of Brexit and the UK’s general economic performance, even keeping rates the same or raising them might do little to lift the pound. That is, until something more certain comes along.

Fed Meeting Could Sway Dollar

Other than the Bank of England meeting on Thursday, across the Atlantic, Federal Reserve officials are meeting today and tomorrow to discuss lending, the US Government’s balance sheet and short-term interest rates, amongst other topics. If any decisions are taken in this meeting then it could impact the dollar, so analysts will watch the markets with great interest for any reaction.

For more GBP/EUR news or if you have a currency requirement you can get in touch with me, Tom Holian, directly at teh@currencies.co.uk, or call +44 (0) 1494 360 899 to discuss these factors in more detail.