Euro trims gains as the Pound strengthens ahead of Andy Burnham’s nomination
- EUR/GBP fails to hold above 0.8500 and gives away gains on Monday.
- Sterling remains buoyed as markets brace for Andy Burnham's nomination as UK's Prime Minister.
- The Euro loses ground, weighed by the escalating tensions in Iran and higher Oil prices
The Euro (EUR) ticks lower against the British Pound (GBP) on Monday, trading at 0.8495 at the time of writing, as last week’s rebound from 13-month lows at 0.8455 failed to consolidate above 0.8500.
The Sterling is picking up across the board as the market braces for the nomination of the former Mayor of Manchester, Andy Burnham, who is expected to replace Keir Starmer, who stepped down as Prime Minister in June after only two years in office,
Burnham, who will become the seventh UK Prime Minister in just over a decade, has pledged in an interview with The Times newspaper to release a 10-year economic plan to “rewire” the UK and improve people’s lives.
The Pound has kept a solid tone since Burnham was presented as the best-positioned candidate to replace Starmer, as he strived to calm markets, promising a responsible fiscal policy. Investors, however, are likely to keep a cautious stance with the GBP, awaiting the identities of the Cabinet’s members.
The Euro, on the other hand, remains on its back foot, weighed by the escalating hostilities in Iran and the higher Oil prices, as the barrel of Brent Crude climbed to fresh one-month highs, a few cents below $90.00 on Monday. In this context, the European Central Bank (ECB) is widely expected to stand pat on rates at its monetary policy meeting, due later this week, but President Cristine lagarde will, most likely, be questioned about a rate hike in September.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the 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.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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