Euro to Pound (EUR GBP) Exchange Rate Volatile Today

October 10, 2014 - Written by Ben Hughes

STORY LINK Euro to Pound (EUR GBP) Exchange Rate Volatile Today

The Euro exchange rate recorded gains against the Pound (EUR/GBP) on Friday morning as Sterling weakness continued.

The Pound slipped after European Central Bank (ECB) President Mario Draghi stated that he would do his utmost to tackle the threat of deflation in the Eurozone.

Draghi spoke at the International Monetary Fund (IMF) conference and asserted that the ECB would use other stimulus measures to kick-start the Eurozone recovery if necessary.

Economist Lee Hardman commented: ‘The market is looking for reasons to sell the Euro and given that inflation expectations continue to fall, there’s still a lot of pressure on the ECB to ease monetary policy further.’

Draghi Helps the Single Currency in the EUR to GBP Exchange Rate

Draghi’s comments came just in time to ressurect investor sentiment in the Euro. Thursday saw German exports sink in August, registering their biggest monthly fall in over five and a half years. As Germany is the Eurozone’s largest economy, its performance has a significant impact on the region as a whole. Economist Carsten Brzeski commented: ‘The magnitude of the fall brings back memories of the peak of the financial crisis in early 2009. The economy seems to need a small miracle in September to avoid a recession in the third quarter.’

Thursday’s figures enhanced fears that Eurozone powerhouse Germany is heading toward a recession—an action that could pull the whole Euro area down. A short time ago, Italy entered its third recession since the onset of the global financial crisis. The IMF recently downgraded its projections for German economic growth in 2014 from 1.9% to 1.4%, a hefty drop by most standards. However, German Finance Minister Wolfgang Schauble appears less concerned than others, commenting: ‘We don’t have a recession in Germany, we have a weakening of growth.’ Schauble’s statements came at the IMF meetings where President Draghi also spoke.

UK Data may Bolster Pound Exchange Rate

Friday has been mixed in terms of UK data releases. August’s Total Trade Balance figures showed a larger than expected narrowing in the deficit. The trade deficit shrunk from July’s -£3079 to -£1917, beating economists’ forecasts of -£3000. However, UK Construction Output stats showed a contraction of -3.9% in August month-on-month after July’s 1.9% growth.

Friday will also see Bank of England (BoE) Deputy Governor Andrew Bailey speak in Washington at the IMF conferences, as well as Executive Director for Resolution Andrew Gracie and Policymaker Kristin Forbes. Thursday saw the BoE keep interest rates at their current record lows in response to Eurozone growth fears. BoE Governor Mark Carney has previously stressed the importance of timing when it comes to increasing borrowing costs. With weak Eurozone data and the threat of recession fears a prominent concern hanging over the market, Carney is likely to consider keeping rates low until damaging external risks are quelled.

Monday will see the UK release Lloyds Employment Confidence figures while Tuesday will bring the publication of the UK Consumer Price Index and Producer Price Index. Meanwhile, the Eurozone will see the release of ZEW’s German Economic Sentiment Survey – a report which could have a notable impact on the Euro.

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