Euro Exchange Rates: All Eyes on ECB Monetary Policy Decision

Euro Exchange Rates: All Eyes on ECB Monetary Policy Decision

The euro is rising steeply against a pound which appears to be in free fall as Brexit talks stall. At the time of writing, euro exchange rates stand at 0.90755 having dipped to below 0.9 on Thursday. Against the dollar things are more modest as EUR makes slow gains after dropping back yesterday. It rose from a low of 1.206 yesterday to 1.209 as trading started on Tuesday.

EURGBP

The good news about Brexit is we now have a date for a final decision: Sunday. The bad news, it looks like that decision will be ‘no’.

Johnson flew to Brussels on Tuesday night to break the impasse. At the end, though, things seemed worse with Britain heading for the exit without a deal. After hours in discussions they emerged to say both sides remained far apart on key issues, but they would extend talks until Sunday.

The three sticking points remain as tough as ever: fishing, the level playing field and legal oversight of any deal. CNN quoted a Number 10 source as saying: “very large gaps remain between the two sides and it is still unclear whether these can be bridged”. However, the source did say the Prime Minister “does not want to leave any route to a possible deal untested.”

Overall, neither side wants to kill off talks for good. But neither side wants to move. The chances of a deal appear remote, and markets have reacted accordingly.

As with everything in Brexit talks, Sunday’s deadline may offer flexibility if there is some sign of a deal. However, it’s been designed as a hard stop to force a decision. Both sides offer little prospect of movement.

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Against the dollar, the euro recovered slightly on Tuesday morning having slipped back over the second half of Sunday. All eyes are on inflation rate figures from the US due later today. Analysts expect it to hold steady at 1.6%. News of a delay in stimulus funding adds to worsening sentiment coming from across the Atlantic and weighs on global risk sentiment.

There are signs of pull back against the dollar. With the ECB keen to bring the euro down to below its 1.2 limit that could weigh on its decisions as it meets.

Economic News

There was more bad news for the pound as Gross Domestic Product (GDP) flatlined after a month of restrictions. After expanding 1.1 in September it slowed to 0.4% the slowest rate for six months. It has also suffered the biggest economic hit of any major economy shrinking an unprecedented 19.8% in the second quarter. The UK also has the highest death toll from COVID 19 in Europe at 62,000.

Britain’s economy is now more than 8% weaker than at the start of the crisis.

In Europe, leaders are meeting. If there is to be any last minute moves on Brexit, now would be the time. All eyes are on the European Central Bank’s decision on interest rates and the ECB press conference. The bank is expected to hold them at 0% and announce further economic support for the economy. If you’d like to discuss these factors in further detail, and their impact on your upcoming currency exchange, get in touch using the form below. I’ll be happy to respond personally.