The Eurozone’s inflation has remained stagnant for 2 years, and with very little at the ECB’s disposal to improve rock bottom inflation, further Quantitative Easing could be on the horizon today.
The ECB has a difficult job managing the economy, with the likes of Greece and Portugal who have, and continue, to be a huge drain on the economy. And with interest rates so low that negative territory is the only option, Mario Draghi may decide to stick to his favourable choice.
What to look out for at today’s Interest rate decision
Economic data from the Eurozone has taken a negative turn recently, whilst Brexit remains the number one concern for investors, the impact could find its way into the Eurozone in the coming weeks and months.
The Bank of England’s decision to cut rates back in August was a sign of things to come. Yes, the UK has so far outperformed expectations but precautionary measures are necessary given the huge ramifications of the vote.
Mario Draghi will likely address the impact of Brexit on the Eurozone, and given that they will lose one of their largest net contributors, the ECB will have to balance the books at some point.
If Draghi implements further Stimulus, GBPEUR exchange rates will likely strengthen in the short term.
It is likely, that Draghi will maintain his dovish tone at today’s meeting, highlighting that the ECB has the necessary tools at their disposal to boost the economy.. This could limit the impact of GBPEUR exchange rate movements. However, the question does remain as to what the ECB will do next, with Quantitative Easing having little impact on inflation Draghi may need to look elsewhere for economic stimulation.
GBPEUR forecast for the rest of September
It looks as though Sterling has reached the peak of its post-Brexit rally with further movements likely to hinder Sterling. Economic data for the UK yesterday provided mixed insights into the post-Brexit economy. However the impact on exchange rates was seen negative, which strengthens the view that investors are scrutinising data for signs of a UK recession and moving funds out of Sterling, at any signs of downfall.
I am forecasting GBPEUR exchange rates to fall back to the 1.16-17 range in the weeks ahead, we may be just be seeing the early impact of the Brexit vote on the economy with business confidence likely to fall. If you are buying foreign currency with Sterling, now could be a good idea.
