EUR/GBP retraces losses and approaches Friday’s highs, near 0.8730
- The Euro retraces previous losses against the pound and approaches multi-week highs, at 0.8728.
- ECB speakers and Eurozone Consumer Confidence are likely to set the Euro's direction later today.
- Investors' concerns about the UK's public finances keep the Pound under pressure.
The Euro has retraced previous losses against the British Pound during the European Morning session on Monday. The Pair bounced at 0.8710 to return above 0.8720 yet still within the upper area of Friday’s trading range.
The focus of the Eurozone will be on the speeches from Bundesbank President, Joachim Nagel, and ECB’s board member, Philip Lane, who might give further insight into the banks’ monetary policy plans.
Over the weekend, ECB policymakers Martins Khazaks and Edward Scicluna affirmed that the bank’s policy is well placed at the moment and that there is no rush to cut interest rates further, which might have provided some support to the Euro.
In between Nagel and Lane’s speeches, the European Commission will release September’s preliminary Consumer Confidence Index, which is expected to have remained depressed, little changed from August.
In the UK, Retail Sales data released on Friday beat forecasts after the BoE met expectations and stood pat on rates earlier in the week. Investors, however, remain wary about the UK’s public finances. UK borrowing hit five-year highs in August, and the market is bracing for tax rises in November’s budget. This is keeping the Sterling under pressure.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
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