The Euro’s recent impressive run against the Dollar and the Pound continued this week. A bank holiday in the UK and geo-political and geographical concerns weighing on the Dollar in the US has allowed the Euro to reach fresh highs as we came back to work in the UK.
More importantly, the Euro’s good start to the week as the result of Mario Draghi’s ability to avoid talking about monetary policy in too much detail at the recent Jackson Hole Synposium. As many analysts expected, Mario Draghi stayed well clear of discussing any monetary policy details and even stayed clear of talking down the Euro’s strength, a ploy many thought he might use due to the Euro’s recent strength starting to affect Eurozone based exports.
I am personally of the opinion, as it seems are many others, that the Euro’s strength looks set to stay for a considerable amount of time. This week, unemployment and flash inflation data are set to be released and are expected to show that the EU may have left these issues behind them. Employment and inflation were key reasons why the ECB’s (European Central Bank) stimulus package couldn’t be touched and why the ECB were in no position to raise interest rates. If this data shows an improvement as expected, I wouldn’t be surprised to see Mario Draghi give an insight to investors as to when the ECB will raise interest rates or unwind additional stimulus even further when they meet on September 7th.
This week, Brexit negotiations are likely to have an effect on both Sterling and the Euro too. Brexit negotiations have so far weighed heavily on the Pound and favoured the Euro. However, if negotiations start to move forward on the UK side, I think this could help to lift some of the pressure off Sterling. Michel Barnier, Chief Negotiator for the EU has already told the UK to get ‘serious’, so I wouldn’t be surprised for the Pound to suffer during the 3rd round of negotiations.