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Pound Reaches 1-Week High Versus Euro, as ECB Warns of Slower Growth

Market CommentaryPound Reaches 1-Week High Versus Euro, as ECB Warns of Slower Growth
Pound Reaches 1-Week High Versus Euro, as ECB Warns of Slower Growth

Sterling jumps versus the common currency! The pound to euro interbank exchange rate has hit 1.1517 in the past day, its highest in over 1 week, or since April 18th.

The pound has strengthened against the euro, because the European Central Bank (ECB) has held interest rates at record lows of 0.0%, and warned of slower economic growth in the Eurozone.

The euro has lost out, in particular because the ECB said in Frankfurt on Thursday that it’s “cautious” about the “loss of momentum” in the Eurozone economy in early 2018.

Given this, the Eurozone’s central bank yesterday renewed its pledge to extend its vast monetary stimulus beyond the hoped-for end of September, thus dragging down the euro too.

This has weakened the euro, first because the ECB is “rather unsure about how to interpret the soft Q1 [economic] data,” on the continent, says strategist Marc Ostwald.

This has also weighed on the euro, because when the European Central Bank extends its monetary stimulus, the ECB electronically prints more euros, thus devaluing the euro!

Euro falls, as Eurozone economic growth softens

Furthermore, the pound has also strengthened against the euro, because the Eurozone’s economic growth has showed signs of softening in recent months, say economic figures.

In particular, IHS Markit’s PMI of output in the Eurozone’s services, manufacturing and constructions sectors hit 55.2 in April, its joint-lowest since the start of 2017, thus weakening the euro.

The Eurozone economy has slowed, first because Germany’s businesses feel cautious that US President Donald Trump may start a global trade war, thereby dragging down the euro.

The currency bloc’s economy has also decelerated, because there are strikes in France, to protest President Emmanuel Macron’s growth reforms, so pulling down the common currency too.

“The Eurozone economy remained stuck in a lower gear in April,” according to IHS Markit chief economist Chris Williamson earlier this week. This has hurt the value of the euro.

As a result, the pound has hit this 1-week high against the euro, and could rise further, looking ahead!

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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or email peter.lavelle@purefx.co.uk.

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