The catalyst for the Euros gains was the release of the minutes to last month’s European Central Bank (ECB) meeting, showing that there was little appetite for scaling back their stimulus measures.
It was thought that with inflation rising the ECB would be tapering its Quantitative Easing (QE) programme, however they kept the door open for even more stimulus this year, despite rising growth. This is probably due to the upcoming high stakes elections in the EU meaning policy makers want to maintain a ‘steady hand approach’ to provide stability and predictability in an environment still characterised by a very high level of uncertainty.
This means that in their March meeting, no changes are likely, and the next review is not until June. The minutes also said that negative risks have receded, and all of the above combined to strengthen the Euro and pull GBP/EUR rates lower.
Despite hints of an interest rise soon, and a raft of better than expected data from the States yesterday, it didn’t help the greenback which weakened against its counterparts, the Pound included.
It’s partly due to concerns about the underlying strength of the US economy, but mainly due to the market being wary of buying into the USD at present due to uncertainty surrounding Trumps protectionist strategy of ‘America First’. Global markets are unable to interpret this policy, because nobody knows what it really means, and that probably includes Trump.
Consider that this is a man who, in the last week, tweeted ‘see you in court’, to an actual court, after just losing in said court, and followed that up this week by deciding to drop decades of US policy to a 2 state solution to the Israeli-Palestinian conflict, and you start to realise nobody has any idea what he will say or do next. Markets do not like uncertainty, and at the moment we have tremendous, phenomenal uncertainty, believe me.
For once, its other currencies driving the market and the Pound has been keeping a low profile, relatively flat against other currencies, with the reasons for moves in GBPEUR and GBPUSD outlined above. There haven’t been many surprises, the economy is still pushing along pretty well. There’s still a few weeks until Article 50 is invoked, and the market seems to be giving Sterling a breather until then. Once the talks start however the sheer complexity of the situation will likely become apparent and at that point Brexit will probably resume its position in the driving seat for Sterling pairs.
This morning we will see the latest Retail Sales figures released at 09:30am. Retail Sales are a good barometer of the overall health of the economy, and more so in the current climate where consumer spending is a major force driving the economy. Recently we saw a surprise decline in Retail Sales, and today’s figure is expected to show monthly growth of 0.9%. If the actual number is lower than this then expect Sterling to fall in value.
**** UPDATE ****
Retail Sales came in at -0.3% which is much lower than expected. GBP/EUR has plummeted to €1.1655 due to the fact this shows the economy is starting to slow. View live FX charts here.