EUR/GBP: ECB Feared to Fall Short on its Pledge

The Euro incurred losses against the British pound in yesterday’s European trading session as markets wait for actions to be taken by the European Central Bank (ECB) after President Mario Draghi last week pledged to preserve the single currency, with supporting statements coming from German Chancellor Angela Merkel and French President Francois Hollande. In today’s European session, the bearish atmosphere is deemed to continue, and seen to weigh on the shared currency.

The jobless rate in the Euro region is set for release today, and awaited by markets as June’s figure is anticipated to rise to 11.2 percent. Yesterday, it was reported that the Spanish economy shrank by 0.4 percent in the second quarter of this year, as the high unemployment rate in the country takes a toll on household spending. Weak job prospects are deemed to have led to restrained consumer spending, weakening the country’s economic activity. Manufacturing in the region is also expected to hold at 44.1 points, the lowest reading since June of 2009.

Meanwhile, optimism for an ECB intervention to stem the debt crisis is fading as investors fear that future actions by the central bank would not meet expectations fuelled by Draghi’s statements last week. On Thursday, markets would wait for any signal from the ECB as the policymakers are set to meet. “The Euro is lower despite all the expectations for ECB and EFSF bond purchases. This is likely accounted for by the worsening economic outlook and lower ECB rates driving the Euro to be the funding currency of choice at present,” said Currency Strategist Emma Lawson of National Australia Bank (NAB). With lowered expectations of additional measures to stem the debt crisis, the shared currency is likely to decline versus the Pound. As such, a short position is recommended for the EURGBP pair in today’s European trades.

Article by AlgosysFx Forex Trading Solutions