The Euro is deemed to regain strength opposite the British pound today as European Central Bank President Mario Draghi expressed confidence over the Euro Zone’s efforts to recover from the debt crisis. Meanwhile, the British pound is seen to be weighed by expectations that inflation in the UK edged lower in November.
Speaking at the European Parliament’s Economic and Monetary Affairs Committee, ECB President Draghi said that new powers to oversee Euro area banks will help restore confidence in the sector, revive interbank lending and facilitate cross-border credit flows. Last week, European ministers clinched a deal to give the ECB powers to supervise the bloc’s banks from March 2014, taking the first step in a new phase of integration to help underpin the Euro. Bank to bank lending has yet to recover from the onset of the global financial crisis in 2007, and many banks rely on the ECB for their liquidity needs. Draghi expressed that combined with possible direct recapitalization of banks by the European Stability Mechanism and a single resolution mechanism, the single supervisory mechanism will go a long way in solving the crisis. His expressions of confidence are believed to support the single currency today.
Meanwhile, the UK Office for National Statistics is deemed to disclose that the Consumer Price Index declined from 2.7 percent to 2.6 percent in November. The inflation rate unexpectedly shot up to 2.7 percent in October as higher university tuition fees pushed consumer-price growth further up. Nonetheless, lower petrol prices and possible discounting among retailers are seen to have eased price pressures. Likewise, a lackluster economy likely contributed to the predicted dip in the inflation rate. The British economy escaped its recession in Q3, but recent data suggest that the economy barely grew in the current quarter. Lower price pressures are deemed to provide the Bank of England scope to increase the size of its asset purchases, which currently stand at 375 Billion Pounds. Considering these, a long position is recommended for the EUR/GBP trades today.
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