Pound Euro Exchange Rate Steady as ECB’s Lagarde Testifies on Monetary Policy

GBP/EUR Exchange Rate Rangebound Following Lagarde Speech

The Pound to Euro (GBP/EUR) exchange rate is trading in a narrow range this morning as markets react to a speech by European Central Bank (ECB) President Christine Lagarde.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1810, virtually unchanged from this morning’s opening rate.

Euro (EUR) Steady on Lagarde’s Neutral Outlook on Monetary Policy

The Euro (EUR) is trending narrowly this morning in response to Chritine Lagarde’s appearance before the European Parliament Economic and Monetary Affairs Committee.

Testifying in Brussels this morning, the ECB President signalled that the bank’s monetary policy is likely to remain unchanged for the foreseeable future.

Lagarde stated that there is limited scope for more easing given interest rates are already at record lows and that its stimulus measures would need to remain in place as inflation continues to undershoot its targets.

‘Low interest rate and low inflation environment has significantly reduced the scope for the ECB and other central banks worldwide to ease monetary policy.

‘Moderate growth performance is delaying the pass-through from wage increases to prices and inflation developments remain subdued.

‘The euro area economy therefore continues to require support from our monetary policy.’

Pound (GBP) Capped by Brexit Jitters

At the same time, the Pound (GBP) is struggling to find momentum this morning amidst lingering concerns over Brexit.

GBP investors are mostly worried about the potential for UK-EU trade negotiations to collapse, resulting in a no-deal Brexit at the end of 2020, particularly in the wake of a speech by Boris Johnson in which the PM sought to strike a hard stance on trade.

Johnson said earlier this week:

‘We have made our choice – we want a free trade agreement, similar to Canada’s. But in the very unlikely event that we do not succeed, then our trade will have to be based on our existing Withdrawal Agreement with the EU.’

Markets think it very unlikely that the EU will agree to any kind of free-trade deal without at least some level of alignment on EU rules, as it attempts to maintain a ‘level-playing field’ with the UK.

GBP/EUR Exchange Rate Forecast: Slump in German Industrial Production to Weigh on the Euro?

Looking ahead, the Pound to Euro (GBP/EUR) exchange rate may tick higher at the end of the week, following the publication of Germany’s latest industrial production figures.

Analysts predict Friday’s data will report a modest contraction of factory output in December, dragging on EUR exchange rates as it stokes concerns about the health of the Eurozone’s largest economy at the end of 2019.

Meanwhile, absent any major Brexit the most pressing issue for GBP investors will be the publication of the UK’s GDP figures on Tuesday.

This may exert some pressure on the Pound next week as economists forecast the UK will report that growth stagnated in the last quarter of 2019 as political uncertainty limited investment and consumer spending.

Matthew Andrews

Contact Matthew Andrews