Will the ECB Cut Rates this Week? (Tom Holian)

GBPEUR exchange rates hit their highest level not seen since January 2013 last Tuesday but have since dropped off from their recent highs following what I would suspect as short term profit-taking.

With inflation worryingly low in the Eurozone and falling for the past few months the ECB are getting more nervous about what to do to combat the fall. I think they are likely to use some form of monetary policy change on Thursday which could either mean a cut in interest rates or the introduction of Quantitative Easing.

The problem with both changes means that if either happens we are likely to see Euro weakness. However, the uncertainty means that if there is no change we could see a bit of Euro strength.

There are two sides to the argument of whether QE could harm the Euro as if this happens it could be perceived as a positive move by the ECB to do something about the ailing economy but it could also be viewed as if they have little choice.

It was also announced earlier that Spain will look at their own stimulus package to help the struggling Spanish economy. Spanish unemployment is currently at 26% and things are not getting better. According to Prime Minister Rajoy ‘the plan will include investments totalling 6.3bn euros, of which 2.67bn will come from the private sector and 3.63bn from the public sector.’

With things over the next few days rather unsettled I think we could see some Sterling strength early in the week against the Euro. 

German inflation data is due at lunchtime tomorrow and if things are low I think the ECB will definitely act on Thursday so expect Sterling strength if the figures are low tomorrow.

If you have a currency transfer to make and want to save money on exchange rates compared to using your bank then contact me directly Tom Holian [email protected]