Good morning,
Over the course of yesterday’s European trading session, the pound pushed above the 1.1900 handle on GBPEUR for the first time since 16th of December when post-election sentiment was still keeping sterling flying. Before we get carried away with dreams of 1.2100 and beyond, it is important to mention that the latest whip upwards in the rates is not to do with some untapped pound power coming to the forefront; but rather a total collapse in Euro strength across the board.
To further illustrate the point, EURUSD fell to its worst levels since 2017 – well into the 1.08’s by close of trading yesterday. The primary reason for the three-day collapse initially kicked off with somewhat of an internal civil war emerging within the European Central Bank on how inflation was to be measured, with ECB head Christine Lagarde looking to keep house prices within the reckoning and those within her executive committee disagreeing. The market was already sceptical of the ECB’s reaction to the dreadful German industrial production release of -3.5% at the turn of the year; so when the news emerged that they couldn’t even decide on how they would present the data, many in the market began pricing in a rate cut to below 0% at the next central bank meeting.
Essentially, if you thought getting nothing for your personal bank savings was bad, try having less than nothing and paying the bank for the privilege of holding your savings – then take that sentiment and imagine you are holding hundreds of millions of euros.
With this in mind, it’s not hard to imagine the Euro’s fortunes worsening during the run-up to the 12th of March meeting.
Have a great day,
Author: Joshua Haden-Jones, Senior Relationship Manager
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