Euro investors remained browbeaten on Friday morning, with yesterday’s run of dovish comments from European Central Bank (ECB) President Mario Draghi leaving the single currency on a poor footing.
Whilst the central bank did announce that it will be tapering its quantitative easing scheme after it expires in September, Mr Draghi also said that a rate rise is not likely until after summer 2019.
He added that uncertainty remains due to worsening global trade relations.
Mr Draghi said: “Uncertainties related to global factors, including the threat of increased protectionism, have become more prominent, the risk of persistent heightened financial market volatility warrants monitoring.”
The euro can’t seem to catch a break today either, with investors disappointed to hear that the bloc’s trade surplus shrank beyond expectations in April, falling from €21.2bn to €18.1bn – below the forecast of €20.0bn.
Combined, this news left the euro on track for its biggest weekly loss in 19 months.
For the UK, investors continued to digest yesterday’s rather upbeat retail sales print of 4.4 per cent.
Whilst this rise was largely attributed to factors like the royal wedding and the early summer heatwave, investors remained confident that the rise will continue due to the World Cup and the ensuing surge in food and drink sales.
Whether this will be sufficient in pushing the Bank of England’s (BoE) Monetary Policy Committee (MPC) towards a rate hike in August remains to be seen.
Policymakers are expected to be looking for stronger, more enduring evidence of economic growth.
Thursday will feature the BoE’s June rate decision, and whilst a rate rise is not expected on this occasion, the expressed sentiment in the accompanying statement and speech by bank Governor Mark Carney could push the exchange rate up or down.
Optimistically, Mr Carney could cite the strength of the UK’s labour market and apparent economic recovery in the second quarter of this year.
Pessimistically, however, the bank could point towards ongoing Brexit uncertainty, with the current lack of a concrete deal and the very real prospect of a ‘cliff-edge’ exit liable to keep policymakers cautious.
Either way, the BoE is currently regarded as being home to more hawks than the European Central Bank, which could give the pound the upper hand in the coming months.