The GBP/EUR rate moved just shy of 1.20 as the resistance barrier held strong for another day, however I do not think it’s long before that changes. Confidence in Sterling has been building after Purchasing Managers Index surveys found that executives are optimistic that business is improving.
More bad news for the Eurozone
The European Central Bank will meet on Thursday this week for the latest Monetary Policy Committee decision. Whilst there is no expectation that the interest rate will change there could be further fiscal stimulus introduced. This does throw up some questions;
Firstly once you have already injected €80bn a month into the economy, how much more can you pump in? Secondly if €80bn isn’t enough then it seems unlikely that its working, especially as there seems to be no evidence.
On Thursday if President Mario Draghi decides to do nothing then I think the Euro may drop and if he decides to increase stimulus I think the Euro will fall. Personally I believe a lot of the problems in Europe are bubbling to the surface which has been a re-occurring theme throughout the Brexit vote. The reason the GBP/EUR rate is at the level it is sits firmly with uncertainty for Sterling and not the strength of the Euro, essentially this rate could start to increase quickly.
Angela Merkel’s Party Losing Ground
Angela Merkel’s CDU party yesterday lost a state election to the Alternative for Germany party for the first time. The party is an anti-immigration party and could be compared to the UKIP of the UK. It is not quite known if Merkel will yet run for a 4th term as party leader, but what is clear is that she may not be anywhere near as popular as she once was.