GBP/EUR reached fresh highs on Thursday after the ECB introduced measures to stimulate the Eurozone economy out of its current malaise. Mario Draghi cut the deposit rate for Banks to -0.1% from Zero. In effect, it is designed to encourage Banks to lend to businesses rather than to store money. It is a version of QE as it provides stimulus to the economy. The ECB also cut the benchmark interest rate to 0.15% from 0.25%. As expected, the EUR had an enormous amount of volatility at the release of these changes and also the subsequent press conference. EUR weakened sharply and then, as sure as night follows day, it rebounded and settled at roughly the same levels. It is rather a bold move from the ECB although it was in most quarters widely expected. As detailed before, a market order is the best way to take advantage of moves on an intraday basis, especially around key events. You can place an order above the interbank Spot rate and should that level be reached it is automatically executed for you.The ECB are trying to stave off deflation and falling prices so are open to unconventional measures to boost inflation if it remains too low. It is currently sitting at 0.5%. That is well below the ECB’s target of just below 2%. The fear of deflation is that quite simply consumers might start to spend less money because they would/may expect to fall in future months. Likewise, for pretty much the same reasons, investors may stop investing and the knock on effect of this is that growth would be hit and demand would be curtailed. Knock on effect of this? Those debts that were racked up by the Eurozone would take longer to repay. Unemployment which is already at 12% in the Eurozone as a whole and. significantly higher in the Southern Europe economies may get worse. Draghi didn’t go as far as suggesting a large asset buying program however he did say, in words that are said at seemingly every press conference that “more would be done, if necessary”. Will these unconventional measures work to lift the Eurozone out of sluggish growth? Time will tell. Do I think things are going to get better anytime soon in the Eurozone? No. We’ve been hearing the same statements since before the last World Cup. We’ll be hearing the same statements around the time of the next World Cup in 2018. “Banks and Policy Makers in the Euro-area must step up their efforts”. Yup, indeed. Will they, so that the Eurozone is ‘healed’ significantly? Unlikely. The ‘crisis’ in one form or another, is going to continue in the Eurozone for a number of years yet.
The EUR as always, is stubbornly resilient. Some range bound trading on EUR/USD and GBP/EUR will be a theme for Monday however we do have the release of the NIESR GDP estimate (3M) (May) on Tuesday that may give Sterling a boost to the upside. Should you have a requirement for EUR please contact me to discuss implementing an order at an agreed level.
What else do we have on later this week? Wednesday is an important day for Sterling with the release of Unemployment Data out of the UK. We have the ILO Unemployment Rate (3M) (Apr) at 09.30am along with the Claimant Count Change (Apr) released also. I would suggest if you have a EUR requirement then to place a market order to take advantage of any spikes in the market on the release of the aforementioned data. Please contact myself or one of the trading team to discuss a suitable level to aim for.
GBP/USD is bobbing around a tight range with no clear direction either way. It is at very good levels compared to where we were at the beginning of the year so if you know your requirement over the next two to three months now would be an ideal time to look at covering off some of your exposure on a Forward Contract.
The rest of the week data wise is fairly quiet so the main movements are likely to be Tuesday and Wednesday. Contact us to implement market orders to take advantage of the increased volatility around these announcements.
If you have any questions please do let me know.
Have a great week.
Written by Liam Alexander