EUR GBP Exchange Rate Slides Following Key ECB Meeting

October 26, 2017 - Written by John Cameron

STORY LINK EUR GBP Exchange Rate Slides Following Key ECB Meeting

The Euro Pound (EUR GBP) exchange rate has fallen back this afternoon as the European Central Bank (ECB) announced plans to halve its stimulus programme.

Euro (EUR) Slips on Dovish QE Announcement

The Euro has stumbled this afternoon as markets reacted to the news that the ECB will begin tapering its quantitative easing programme from the start of next year.

The bank announced that from January it would lower its monthly bond purchases from €60bn to €30bn but extend its QE programme to next September, buying €270bn worth of assets during the first nine months of the year.

However investors were left slightly disappointed by the bank’s plans for a ‘gentle exit’ from QE as it will likely delay plans to raise interest rates.

ECB said that rates would remain on hold ‘for an extended period of time, and well past the horizon of the net asset purchases’, with economists suggesting that the bank’s current stimulus extension will rates remain on hold until at least 2019.

Markets were also wary over dovish comments from the ECB that its QE programme could be extended or the rate of purchases risen again if it felt it was necessary.

ECB President Mario Draghi said in a press conference following the announcement;

‘Our programme is flexible enough that we can adjust its size smoothly, today's monetary policy decisions were taken to preserve the very favourable financing conditions that are still needed for a sustained return of inflation rates towards target.’

Since beginning its QE experiment in 2015 the ECB has bought over €2tn worth of assets in an attempt to bolster growth and raise inflation.

While the Bank’s stimulus programme has faced fierce criticism from some economists, particularly in Germany the growth seen in the Eurozone this year would suggest that it has been at least partially successful.

Pound (GBP) Weakened by Poor Retail Sales

The Pound is also struggling today as data showed that UK retail sales nosedived in October.

According to data released by the Confederation of British Industry (CBI) UK retails fell sharply this month with its Distributive Trades index plummeting from 42 to -36, well below expectations of a more modest drop to 15.

Analyst suggest that the fall is mostly due to consumers feeling the pinch from soaring prices as the gap between inflation and wage growth continues to expand at an alarming rate.

Hannah Maundrell, editor in chief of money.co.uk, said;

‘These results are definitely worrying for retailers as they are clearly starting to feel the impact of inflation.’

‘This survey doesn’t cover the whole market, however it could be a good indication that consumers are being more wary in the run up to Christmas and aren’t willing to part with the shiny new pounds in their pocket quite as quickly as before. Wages aren’t rising in line with the inflation which could be one reason why sales are down.’

Adding to worry’s for retailers is that this drop in sales comes just ahead of the key Christmas sales period.

Meanwhile economists also suggest that that the downturn in sales could sway the Bank of England (BoE) towards leaving interest rates on hold when it meets next week.

EUR GBP Exchange Rate Forecast: BoE Rate Hike to BE delay

With little in the way of UK domestic data left to be released this week investors are likely to turn their attention to the BoE rate decision next week as analysts remain uncertainty whether policymakers will still support a rate hike given a string of poor economic figures last week.

Meanwhile the Euro may stumble again tomorrow should France’s Consumer Confidence have slipped again in October.

Current Interbank Exchange Rates

At the time of writing the EUR GBP exchange rate was trending around 0.8885 and the GBP EUR exchange rate was trending around 1.1253.

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TAGS: Euro Pound Forecasts