Big move forward for the €, GBP vulnerable
This afternoon’s ECB meeting caused a strong rebound in the value of the EURO. This shot EUR/USD back to the 1.1900 level, and forced GBP/EUR through 1.0900.
The key elements were:
Lagarde’s comment that “incoming information suggests a strong rebound in the Eurozone”. This positivity was not without some caveats, such as the comment “surrounded by uncertainty”, but the market is buoyed by the fact that the ECB remains confident, and said that “ample monetary stimulus remains necessary”.
The ECB sees “no need to over-react” to EURO gains. This countered comments earlier this week that suggested the ECB was anxious about the level of the currency. In the absence of this concern, the currency undid previous losses.
EU rates were left on hold, and no added stimulus was added to the PEPP package. However, by dismissing concerns about recent € strength, and Lagarde adopting a positive tone, the shared currency was well supported.
GBP/EUR took the largest single move, dropping from 1.1000 to 1.0875 at the close – the double-whammy of a weak £ and strong € playing out and seeing the market close positions.
Brexit headlines will dominate he short terms, but for now, the € is on a stronger footing. The USD advanced today as Producer Price Inflation was strong, suggesting that the dis-inflationary pressure from Covid-19 may have been overstated. This leaves GBP very vulnerable amongst the G3 currencies.