The British pound fell against the euro on Thursday after Bank of England Governor Mark Carney struck a particularly pessimistic tone in a speech in London, hinting UK interest rates might be headed lower. The fall in Sterling came as a huge relief rally took hold in global markets after the US and Iran stepped back from the brink of a new war in the Middle East.
GBP/EUR was lower by 74 pips (0.60%) to 1.1722 as of 1pm GMT, taking the currency pair back down to the lows reached on Monday this week.
The dovish remarks by the outgoing Bank of England governor were during a scheduled speech at an ‘inflation-targeting conference’ in London. Carney suggested policymakers on the central bank’s Monetary Policy Committee were considering cutting interest rates or increasing government bond purchases. The last time the bank took such action was directly after the 2016 EU referendum. Carney said, “As is entirely appropriate, there is a debate at the MPC over the relative merits of near-term stimulus to reinforce the expected recovery”.
The euro was higher against most major currencies on Thursday on signs of green shoots in Germany’s industrial sector. German industrial production for November exceeded expectations by expanding by 1.1% month-on-month. Economists have forecast a smaller rise of 0.7%. The positive data went a long way to offset the disappointing factory orders data released on Wednesday, which had weighed on the single currency. Traders have been watching economic activity in Germany’s export-orientated heavy goods industries for signs of a wider rebound across Europe.
European Union officials playing hardball on the upcoming second phase of Brexit, the negotiation of a trade deal is adding to the Sterling-weakness, notably against the euro. Whichever set of negotiators drive the tougher deal in any Free-Trade Agreement (FTA) should benefit that economy. European Commission President Ursula von der Leyen told an audience in London after visiting UK Prime Minister Boris Johnson that a partial trade deal was possible by the end of 2020. While some kind of a deal being achieved is a clear positive, a partial deal sounds like a far cry from the kind of comprehensive deal that would most benefit trade between the two economies.