Draghi Watch : GBP EUR Exchange Rate Forecast To Climb

August 7, 2014 - Written by John Cameron

STORY LINK Draghi Watch : GBP EUR Exchange Rate Forecast To Climb

The main event for today’s session came in the form of the latest post-policy announcement press conference from European Central Bank (ECB) Chief Mario Draghi. As expected, the ECB had announced at 1245hrs BST that it was set to maintain its trio of headline interest rates at their current levels for another month, meaning that the euro area’s retail banks will continue to be charged for parking funds overnight with Europe’s central bank.

Draghi’s post-decision comments were expected to prove to be sternly euro-negative, given the highly accommodative policy stance adopted by the ECB during recent months. However, when the euroland central banker took to the lectern at 1330hrs BST, the single currency almost immediately began to firm up. The Pound euro exchange rate GBP/EUR spiked to 1.2600 at 1332hrs BST but the pair had edged lower to 1.2569 by 1355hrs.

The initial bout of support for the euro was driven by Draghi’s observation that, ‘the monetary policy announcements of last June have been successful.’ The suggestion that the ECB’s long-standing measures were having their desired effect caused market participants to price-in a lower percentage chance that the ECB will be announcing an all-out bout of Quantitative Easing later this year.

However, support for the single currency slumped in the 30 mins which followed, sending GBP EUR all the way up an intraday day high of 1.2618. The single currency was hit by Draghi’s headline-grabbing assertion that, ‘real rates will remain negative in the Euro area much longer than they will in the United States,’ and by his lack of clarity on the possible effects of Russia’s sanctions on eurozone imports. Bank of America Merrill Lynch’s Athanasios Vamvakidis concurred, stating that, ‘these comments failed to produce a sustained impact on the euro because they are not specific enough.’

Elsewhere, the Canadian Dollar has come in for some support during this afternoon’s session, sending the Pound Sterling Canadian Dollar exchange rate down to as low as 1.8362 GBP CAD earlier on, following the publication of a significantly stronger than anticipated set of domestic Building Permits data for June, which pointed to a surprise 13.5% increase, (a drop of 1.9% was expected). The leading indicator of activity levels in Canada’s construction sector bodes well for future domestic economic activity, stoking investors’ expectations regarding the prospects of an interest rate hike from the Bank of Canada.

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TAGS: Canadian Dollar Forecasts Currency Predictions Euro Forecasts Euro Forecasts