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Euro Pound Sterling (EUR/GBP) Exchange Rate Edges Up as ECB Leaves Rates Unchanged

June 6, 2019 - Written by John Cameron

Euro Pound (EUR/GBP) Exchange Rate Rises as ECB Leave Interest Rates Unchanged

The Euro Pound Sterling (EUR/GBP) exchange rate remained muted and the pairing is currently trading at an inter-bank rate of £0.8885.

On Thursday, the European Central Bank (ECB) left interest rates unchanged as the bloc struggles with weak inflation and low growth.

The central bank pledged to keep interest rates at the current record low until at least the first half of 2020 instead of until the end of this year.

In a statement, ECB President, Mario Draghi said:

‘We now expect them to remain at their present levels at least through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.’

The ECB slashed its 2020 growth forecast from 1.6% to 1.4%, while increasing its 2019 forecast to 1.2% from 1.1% which likely buoyed the Euro.

However, President Mario Draghi stated that some members of the governing council had suggested the possibility of cutting rates to new record lows or restarting its QE stimulus programme.

Draghi noted:

‘Despite the somewhat better than expected data for the first quarter, the most recent information indicates that global headwinds continue to weigh on the euro area outlook. The prolonged presence of uncertainties related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets is leaving its mark on economic sentiment.

‘Looking ahead, the governing council I determined to act in case of adverse contingencies.’

Euro (EUR) Edges Up despite as Defiant Italy

The single currency remained under pressure as Italy may face disciplinary action due to its failure to respect European Union spending rules.

It was found by the European Commission that Italy’s public debt stood at more than 130% of GDP last year.

This was far above the 60% limit and it warned that a ‘snowball effect’ was likely to cause the situation to worsen in 2019 and 2020.

However, Italy’s leaders remained defiant following the EU’s warning, with Deputy Prime Minister Matteo Salvini stating:

‘I’m sure that in Brussels they will respect our will. The only way to cut the debt created in the past is to cut taxes.

‘Cuts, sanctions and austerity have only produced more debt, poverty, precariousness and unemployment. We need to do the opposite.’

Conservative Leadership Contest Weighs on Sterling (GBP)

Meanwhile, Sterling struggled for direction as the Conservative leadership contest heated up.

Investors remain reluctant to take positions as a Eurosceptic Conservative leader would increase the risk of a no-deal Brexit and send Sterling sliding.

One leadership contender, Michael Gove said he would delay Brexit rather than rush into a no-deal.

Meanwhile, Dominic Raab suggested that in order to ensure the UK leaves the EU on 31 October he would be prepared to shut down Parliament.

However, Speaker John Bercow said ending the current session to force through a no-deal exit is ‘simply not going to happen.’

Euro Pound Outlook: Will Disappointing Eurozone Industrial Production Weigh on EUR?

Looking ahead to Friday, the Euro (EUR) may slide against the Pound (GBP) following the release of the bloc’s industrial production data.

If industrial production slumps further than expected in April, it could dampen sentiment in the single currency.

Meanwhile, the Euro could slump following the release of April’s German exports data.

If exports slide further than forecast, it could cause the Euro Pound (EUR/GBP) exchange rate to fall.

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