The British pound is lower against the euro on Thursday afternoon as the euro stabilised ahead of the monetary policy meeting of the European Central Bank. Across all markets, investors have been reducing risk exposure because of concern of the coronavirus outbreak in China.
GBP/EUR was lower by 12 pips (-0.10%) at 1.1830 with a daily price range of 1.182 to 1.186 as of 11.30am GMT, with the currency pair just down from its 2020 highs.
While the euro has been all over the place in relation to the British pound, it has been trading in a very tight range against other currencies. Some of that relates to uncertainty about the next steps from the European Central Bank (ECB), namely whether it will continue its current monetary stimulus program. Former IMF Direct Christine Lagarde took over as new President at the ECB in November and has opened a “strategic review” of the central bank’s existing policies.
As a reminder the ECB currently has its benchmark interest rate set at 0%, deposit rates are set at negative -0.5% and the bank is buying 20 billion euros worth of government bonds every month. Negative interest rates and the purchase of government bonds (or quantitative easing as it is known) are referred to as ultra-accommodative monetary policy. That means the central bank is close to doing everything it can to sustain the economy and maintain price stability.
The backdrop to this decision about what the bank should do next is one of falling Eurozone economic growth in 2019, where manufacturing, especially in Germany fell into recession. There are tentative signs of so-called “green shoots” but its early days. The minutes from the last meeting could offer some clues about what to expect today. The minutes said core inflation is rising and a said the effect of the latest policies had been ‘conservative’. If these minutes are any guide, the ECB could adopt a positive tone on inflation and the Eurozone economy, which would typically be positive for the euro. If the bank wants more time to see how the economy approves it would adopt a more cautious tone and highlight the risks such as uncertainty over global trade, which would likely have a more negative impact on the single currency.
