EUR/GBP Fundamental Forecast – September 12, 2016

The EUR/GBP dipped 6 points as the pound gained steadily today to trade at 0.8462. The UK released trade balance numbers today which printed lower than expected but the numbers were within range.  The ECB appeared keen to bask in the sunshine of data showing that although growth had slowed sharply in the second quarter, the decline appears to have been halted, with even Brexit failing to inflict the damage that some had forecast.

GDP growth for both 2017 and 2018 was revised down only a marginal 0.1 percentage point while inflation projections were revised down by 0.1% percentage point to 1.2% in 2017 but left unchanged at 1.6% in 2018.

Of course both of these remain well below the ECB’s own target of 2%. ECB President Mario Draghi did admit that the bank has tasked committees to evaluate further stimulus options.

Certainly, some in the market feel this could be warranted if the euro continues to climb against the dollar as it has over the last week or two. A strong euro would hit export growth and damage growth prospects in the region even further.

The Bank of England’s recent decision to cut interest rates to a historic low of 0.25% and to re-boot the quantitative easing program to the tune of £70 billion will have had the EU ‘gasping in despair’, according to one financial advisor. In addition, the UK is the second-largest economy in the EU and with near- zero growth forecast for the next two quarters, and with weak sterling making imports more expensive, EU exporters will face a far more challenging marketplace.

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Upcoming Economic Events that you should be monitoring:

 September 12, 2016

Government Bond Auctions

Date Time Country Auction

Sep 12 11:30 Germany Eur 2bn Mar 2017 Bubill

Sep 12 13:00 Norway Details of bond auction on Sep 14

Sep 13 11:00 Netherlands Eur 2-3bn 0% Jan 2022 DSL

Sep 13 11:10 Italy Holds bond auction

Sep 14 11:05 Norway Holds bond auction

Sep 14 11:30 UK 0.125% 2046 I/L Gilt

Sep 14 11:30 Germany Eur 1bn 2.5% Jul 2044 Bund

Sep 15 10:30 Spain Holds bond auction

Sep 15 11:03 Sweden Holds I/L bond auction

Sep 15 11:50 France Holds bond auction