The Pound ended last week holding onto a rate of around 1.20 Euros after a difficult month for the Pound in March.
By Luke Trevail of TorFX
What put the Pound on the slide in March, dropping from 1.2173 Euros at the beginning of the month to a low of 1.1912 by the 18th of March, a fall of more than 2 per cent?
The latest UK manufacturing figures disappointed investors with output down by more than initial market expectations. There has been a brewing concern that the UK economy is suffering a loss of momentum in recent weeks, after a number of key indices declined for the month of February.
The feel good factor surrounding the UK economic outlook had propelled the Pound higher since the turn of the year with gains in services, manufacturing and construction. UK inflation has also fallen below 2%, below the Government’s target, indicating that the cost of living is coming down, freeing up households’ disposable income. But the downside of falling inflation is a reduced probability of an interest rate hike over the next 12 months, which has weakened demand for the Pound.
The Euro has also displayed resilience to a number of negative factors, including the geo-political tensions that have escalated between Russia and Ukraine. The single currency pushed towards 1.19 versus the Pound in March and was further supported by a much more bullish ECB statement from the Chairman Mario Draghi at the beginning of the month.
Despite speculation suggesting that Europe are gearing up for quantitative easing, Draghi seemed confident about the pace of the economic recovery and all eyes will be on this week’s press conference to see if he follows a similar pattern.
He did, however, end last week indicating the ECB is ready to undertake quantitative easing to combat deflation in the Eurozone, if necessary. That helped the Pound recover all the ground it had lost to the Euro earlier in the week.