Pound Sterling Outlook Negative, Euro Forecasts Mixed

July 22, 2016 - Written by Ben Hughes

STORY LINK Pound Sterling Outlook Negative, Euro Forecasts Mixed

The Pound has crashed against peers recently on poor PMI results, while the Euro has been a more mixed bet on account of a more diverse range of PMI flashes for the post-'Brexit' period.

ECB President Mario Draghi Confident Eurozone Weathered Brexit Shock

The European Central Bank (ECB) announced that it was maintaining its three benchmark interest rates at their current record low levels yesterday afternoon. Two of the three are in negative territory and have been for several months, while the ECB’s headline Repo rate stays at zero per cent.

The ECB also announced that it would be maintaining the €80 bn per month Quantitative Easing programme which it is currently persuing until at least March of next year and past this date ‘if necessary’.

ECB President Mario Draghi sought to strike a calming tone during his post announcement press conference, telling assembled journalists that,

‘Following the UK referendum on EU membership, our assessment is that euro area financial markets have weathered the spike in uncertainty and volatility with encouraging resilience’

He went on to posit that,

‘What is clear is that financial markets and the banking sector have reacted in a fairly resilient fashion to the event. We haven’t observed any disruption either in financial markets or the banking sector.’

Hint of Further ECB Easing Weighed on EUR Exchange Rates

However, the tone of the subsequent rhetoric from Draghi may weigh down the shared currency into the medium term. The Italian money man went on to predict that, ‘over the coming months when we have more information we will be in a better position to reassess the underlying macroeconomic conditions,’ before suggesting that, ‘if warranted, to achieve its objective, the governing council will act by using all the instruments available in its mandate.’

The promise of further policy easing from the ECB should economic conditions deteriorate, then the outlook for the single currency could rapidly deteriorate. Such a scenario cannot be ruled out given that the European Commission has forecast that the impact of the Brexit vote on the mainland European economy could see it contract by between 0.25% and 0.50%. What is bad for the Pound Sterling, it would seem, is also bad for the euro (currency : EUR).

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TAGS: Euro Forecasts Pound Euro Forecasts Pound Sterling Forecasts