Euro runs into trouble as ECB dismisses idea of policy change

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After a mixed day of trading the GBP/EUR exchange rate managed to just about hold €1.17 (although this was largely due to euro weakness).

GBP/USD failed to climb back above the $1.25 level and GBP/NZD slid from its 2017 high, but GBP/AUD did push from AU$1.6471 to AU$1.6559.

Meanwhile, a one-month high for oil prices drove GBP/CAD from C$1.6793 to a low of C$1.6682.

What’s been happening?

The UK’s economic calendar was empty yesterday, leaving the pound to move at the mercy of external events.

GBP sentiment was solid mid-week thanks to the UK’s impressive service sector report, but concerns about overall growth slowing in the first quarter of 2017 left the pound fluctuating as the weekend approached.

Sterling was eventually able to march higher against the euro however as officials from the European Central Bank (ECB) indicated that the institution is happy with current monetary policy and has no plans to either taper quantitative easing or increase interest rates in the near future.

Draghi left the euro struggling when he stated; ‘We are confident that our policy is working and that the outlook for the economy is gradually improving. But even so, we have not yet seen sufficient evidence to materially alter our assessment of the inflation outlook – which remains conditional on a very substantial degree of monetary accommodation. Hence a reassessment of the current monetary policy stance is not warranted at this stage.’

ECB Vice President Vítor Constâncio and Executive Board Member Peter Praet supported the view that borrowing costs aren’t likely to be altered any time soon. As well as dipping against the pound, the euro fell to a low of 1.0627 against the US dollar.

What’s coming up?

Before we kick back for the weekend we could see a final flurry of pound movement thanks to the UK’s industrial and manufacturing production numbers. Both measures have been forecast to show growth in February – a result that could be pound positive.

However, the day’s UK trade data and NIESR GDP estimate for March may limit pound gains if they show a widening deficit or a slower pace of domestic growth.

A speech from Bank of England (BoE) Governor Mark Carney is also on the horizon and his tone on the subject of interest rates could be key to how the pound closes out the week. Hints of a rate hike could send the pound soaring, but indications that rates are going to remain on hold for the foreseeable future would be negative for GBP.

There’s also some high-profile US news to focus on, in the form of the nation’s non-farm payrolls report. As solid growth in the labour market might convince the Federal Reserve that more than three rate hikes will be necessary in 2017, the US dollar could stop the pound breaching $1.25 if the NFP report exceeds expectations.

Finally, GBP/CAD volatility may follow the publication of Canada’s own jobs data. The unemployment rate is believed to have increased in March and (if that proves to be the case) the pound could close out the week trading higher against the Canadian dollar.

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