At the time of writing both the EUR and GBP have been finding support from the current dollar weakness. Sterling rose towards a two-week high versus the greenback on Wednesday as investors bought into riskier assets. This switch in asset allocation came as Jerome Powell, the Federal Reserve Chair, signalled a continued loosening of monetary policy at last week’s Jackson Hole conference. This led to a spate of selling in the dollar and a reallocation of investor funds into equities & riskier currencies.
The EUR/GBP exchange rate has also enjoyed the joint benefit of inflationary pressures. ECB policymakers meet next week in the face of the highest inflation rate for more than a decade after data printed a 3% annual rise in consumer prices in the eurozone in August. Markets are now beginning to focus their thoughts on the potential for an ECB taper. This has seen the EUR reach one-month highs versus the pound.
The ECB (European Central Bank) meet 8 times a year, with the next big meeting on 9th September. The ECB have been making monthly bond purchases under the pandemic emergency purchase program (PEPP) in an attempt to keep boost growth through the Covid-19 pandemic and to keep inflation from falling. If they were to reduce the monthly bond purchases this would be a strong signal by the policy makers that the Eurozone was heading in the right direction – and hence the euro could strengthen even more.
Make sure to keep an eye on Thursday as it could be an eventful day for the Euro.
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