Sterling to Euro rate awaits European Central Bank decision

Sterling to Euro rate awaits European Central Bank decision

The ECB left interest rates on hold at the latest monetary policy meeting and also made no changes to forward guidance, contrary to some expectations that there would be a removal of rhetoric indicating that bond purchases could be increased further.

A combination of adverse market reaction to United Kingdom retail sales figures and hawkish comments from European Central Bank (ECB) President Mario Draghi have pushed the GBP/EUR exchange rate down to an eight-day low.

After ECB chief Mario Draghi raised the prospect of policy tightening last month, he signaled that any policy tweaks would come only gradually, setting the scene for a possible discussion in September about a long-awaited tapering of its asset buys.

Economists had expected the index to rise by 0.4 percent compared to the 0.3 percent increase originally reported for the previous month.

At the time of writing, the Euro to Pound Sterling (EUR GBP) exchange rate was trading at 0.8972 and the Pound Sterling to Euro (GBP EUR) exchange rate was trading at 1.1144. The purchases pump newly printed money into the economy in an effort to push up inflation, which is now at an annual rate of 1.3 percent.

A report released by the Labor Department on Thursday showed a much bigger than expected decrease in first-time claims for US unemployment benefits in the week ended July 15th. "In the base case, the European Central Bank will likely reduce its monthly asset purchases by €5-€10bn euros per month beginning in January 2018, and conclude a taper of QE in the second half of 2018", chipped in Bill Adams, senior global economist at PNC Financial Services.

However, Didier Rabattu, head of equities at Lombard Odier Investment Managers, believes ongoing weakness in inflation in the bloc and concern over the banking sector could dampen the Draghi's enthusiasm for raising rates.

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Macroeconomic data is on the lighter side for the day ahead, leaving the markets to consider the lie of the land ahead of tomorrow's heavily anticipated European Central Bank monetary policy decision and, more importantly, Draghi press conference, the European Central Bank becoming the centre of attention, with the FED seemingly on a more dovish footing.

United Kingdom government deficit figures are expected to have shown an improvement upon the previous month, with the spending shortfall anticipated to have shrunk by around -£1.7 billion. The pan-European Euro Stoxx 600 index extended gains a little on the announcement and yields on the 10-year German bund also pushed lower.

The highly anticipated European Central Bank meeting took place today with the announcement that interest rates would remain unchanged at the record low of 0.0%.

The euro has gained almost 11 percent so far this year against the dollar.

In the fiscal 2019, inflation is forecast to be 2.3 percent instead 2.4 percent.

"Inflation is not where we want it to be and where it should be", he said.

United Kingdom retail sales rose by 0.6 per cent in June, beating economist forecasts, following a fall of 1.2 per cent in May.

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