The GBP/EUR rate closed the day around 1.20 having falling into the low 1.19’s as Mario Draghi delivered his statement after the European Central Banks Interest Rate Decision. Whilst the decision was expected to be a non-event as it was, the speech that followed was key.
Draghi has potentially exhausted all of his resources by dropping interest rates to 0% and injecting €80bn a month in quantitative easing into the market. The question today was what can he do to further stimulate the economy? Arguably further QE would only increase the amount of debt the banks currently hold. Furthermore negative interest rates have failed to turn an economy around in all scenarios it has been used. Dragi did suggest that come September if things haven’t improved for the Eurozone he would be prepared to act, but it’s yet to be seen how.
It was reported however that the recent Brexit result had not yet taken effect on the EU. There has been no data suggesting there was a slowdown just yet. However Draghi is giving himself time to see the full effects in the coming months to make sure any decisions her makes aren’t irrational or early.
The ECB President has put pressure on Governments to further support the effort to assist the banking crisis across nations in the Eurozone. The banking sector is very much causing a lot of the problems in the South Mediterranean so if this can be solved at source, then the general picture could start to improve.
In the coming weeks I believe that Sterling could find further strength, PM Theresa May has started meeting Europe’s leaders and this could start to settle markets. Having no answers creates volatility, if agendas and opinions are shared the markets can interpret what’s actually happening rather than guessing and waiting.
As a trader in a currency brokerage I am able to help you achieve the best rates possible, whilst also assisting with the timing of a transaction to make sure you get the most for your money. If you do have a currency requirements please feel free to send me Ben Fletcher an email at email@example.com.