Today at 12:45pm this afternoon we saw the release of the European Central Bank’s (ECB) latest interest rate and monetary policy decisions. As a key driver of the strength of any currency, the underlying basic interest rate level affects the risk and return decisions made by traders and investors across the globe. Generally, an increase in interest rates draws Foreign Direct Investment (FDI) decisions made by investors into the economy in question, increasing demand for the currency and thus strengthening paired rates.
Whilst the ECB’s rate decision saw no change in the underlying basic interest rate or deposit rate counterpart, both of which were kept on hold at 0% and -0.4 respectively, the subsequent press conference seemed to excite the market with Mario Draghi (President of the ECB) pointing towards the ECB making a decision on whether to taper its heavy €60bn monetary stimulus package in the Autumn.
The news saw GBP/EUR exchange rates plummet for the second time today, currently holding just above the 1.12 resistance level threshold.
How has GBP/EUR performed today?
Today has been a difficult day for those looking to purchase EUR with GBP as the Pound surrendered some of the strong gains it had made against the Euro over the past week.
Even above forecast figures for UK retail sales in June could not hold off a half cent loss this morning, which saw the GBP/EUR rate drop below 1.13 after a crippling comment by Trade Minister Liam Fox in a radio interview, suggesting “the UK can survive with no Brexit deal”, once again raising fears in the market over a hard Brexit.
While there is little economic data for the UK and Eurozone out on Friday I believe the markets will turn their attention to the ongoing Brexit negotiations as the key driver for GBP/EUR rates, any further “Liam Fox” episodes could see levels drop into mid 1.11 levels without hesitation.