- European Central Bank (ECB) pushes back rate date target
- Organisation for Economic Co-operation and Development (OECD) worried about European economy
- Robust talks but no Brexit deal yet
Sterling has repeated its rise during February and early March with the Euro in much the same way it has gained against other majors. GBP rose from 1.131 to 1.171, as optimism rose that a Brexit agreement could be achieved. The low came on 14th February, as Theresa May lost a crucial Commons vote and the high on 27th February on news that MPs may get the chance to vote to delay Brexit. Now we are just three weeks away from the 29th March deadline for Britain to leave the European Union, the Pound and Euro will be extra sensitive to major Brexit developments. The weakness of the economy in Europe has also come under scrutiny, with the bank introducing fresh lending stimulation and delaying any rate change plans.
ECB pushes back rate date target
The European Central Bank (ECB) again put interest rates on hold and put back the expected date of the next move. The interest rate on the main refinancing operations is 0%, the marginal lending facility 0.25% and the deposit facility -0.40%. It also announced a new set of measures to boost bank leading. The ECB is to introduce quarterly targeted longer-term refinancing operations (TLTRO-III) in September 2019. They will run until March 2021 and will have a maturity of two years. The TLTROs will provide loans to Euro banks at cheaper rates, in a bit to improve customer credit and stimulate the economy. As a result, GBPEUR rose from 1.159 to around 1.166 following the announcement.
The ECB Governing Council now expects the key ECB interest rates to remain at their present levels at least through the end of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term. The ECB had previously estimated rates would remain at their current levels until at least the summer 2019. The loans are being introduced in a bid to stimulate growth, which was at the slowest in four years at the end of 2018 at 0.2% for the final quarter 1.8% for the full year. ECB President, Mario Draghi, says that with the US/China trade war, Brexit and other issues dragging down economic performance, action was needed. “In a dark room you move with tiny steps. You don’t run, but you do move. You try to be proactive rather than reactive.”
Organization for Economic Cooperation and Development worried about European economy
The Organization for Economic Cooperation and Development (OEDC) has cut its forecast for 2019 global economic growth by 0.2% to 3.3%. Among major concerns is the weakening European economy, it says. “Economic prospects are now weaker in nearly all G20 countries than previously anticipated. Vulnerabilities stemming from China and the weakening European economy, combined with a slowdown in trade and global manufacturing, high policy uncertainty and risks in financial markets, could undermine strong and sustainable medium-term growth worldwide.” Weakness in one country’s banking sector in Europe could spill over to others, the OEDC warns. It now predicts that growth in 2018 will be just 1% in Europe and 1.2% in 2020. OECD Chief Economist Laurence Boone, says, “The global economy is facing increasingly serious headwinds. A sharper slowdown in any of the major regions could derail activity worldwide, especially if it spills over to financial markets. Governments should intensify multilateral dialogue to limit risks and coordinate policy actions to avoid a further downturn.”
Robust talks but no Brexit deal yet
With just three weeks to go until Britain is due to leave the European Union, the UK and EU have had “robust” talks, but, at time of writing, no agreement has been reached. Leading up to the next Meaningful Vote by UK MPs on Tuesday 12th March, European negotiators have called for “acceptable” proposals to break the deadlock. However, British Attorney General, Geoffrey Cox, claims the UK ideas for the Irish backstop are “as clear as day” and were continuing to be discussed. During February, the Pound gained ground against the Euro on hopes that agreement could be reached with the EU before the 29th March leaving date.
Some important issues are on their way to being resolved. The UK government has agreed to seek to safeguard citizens’ rights, whether or not there is a no-deal Brexit. It accepted MP Alberto Costa’s amendment at the end of February that if no deal is reached over Brexit, it will seek an agreement from Brussels to protect the rights of British nationals settled in the EU and EU citizens in the UK. The amendment “requires the Prime Minister to seek at the earliest opportunity a joint UK-EU commitment to adopt part two of the Withdrawal Agreement on Citizens’ Rights and ensure its implementation prior to the UK’s exiting the European Union, whatever the outcome of negotiations on other aspects of the Withdrawal Agreement.”
As a result, the Pound rose steadily on rumours that the European Union could demand an extension for British membership until December 2020. MPs also passed the Cooper/Letwin amendment saying that if MPs vote to delay Brexit, the government should seek an extension from the European Union and bring forward legislation to change, in law, the date of the UK’s departure. It is not binding in the same way as an Act of Parliament, but is an expression of the will of the House and that would be politically difficult for Prime Minister, Theresa May, to ignore.
In any case, the amendment simply formalises the promises made by Mrs May the day before to allow MPs to prevent no-deal and seek an extension to exit day. After the votes, Reuters asked major banks and financial organisations to assess the risk of a no-deal Brexit. The answers ranged from 10% to 53%, illustrating that no-one really knows how Brexit will end. With that in mind, it is important to keep abreast of the news, watch the markets and stay in touch with your Halo Financial Currency Consultant, if you are due to exchange Sterling and Euros.
Guidance for buying Euros
Sterling-Euro has broken into a new trading range and as long as it holds above 1.1550/80 on a weekly basis it should continue on the upward trend. Protection should be left below 1.1500. A break above 1.1700 would suggest a test of 1.2000 is likely.
Guidance for selling Euros
It’s looking a little bleak for Euro sellers and 1.1550 looks to be decent support in the short and medium term. For now the RSI’s are not overbought and a test of 1.1700 looks more likely.
Article supplied by Halo Financial, March 2019.
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