ECB to comment on a strong EUR and inflation strategy
10 September

ECB to comment on a strong EUR and inflation strategy

The European Central Bank is widely expected to keep its policy steady when the Governing Council convenes today. The ECB launched extensive stimulus to support businesses and households during the pandemic. President Christine Lagarde is expected to comment on a strong euro threatening exporters and fresh forecasts which are likely to show slight changes to the overall outlook. Some analysts also expect clues on the inflation strategy in case the ECB follows the FED’s path to leave it lower for longer. Data showed euro area consumer prices turned lower in August for the first time since 2016.


US House Speaker Nancy Pelosi said the UK will not get a trade deal with the US if Brexit threatens peace in Northern Ireland. Pelosi warned Britain that ignoring some parts of its European Union divorce treaty could imperil any new trade agreement with the United States. The agreement calls for border-free trade on the island of Ireland, which in some cases require checks on goods passing between Northern Ireland and mainland Britain. UK Prime Minister Boris Johnson is already facing heavy criticism, including from his own party, over the move and the impact it could have on Britain's standing in the international community.  The 1998 Good Friday Agreement largely ended three decades of political and sectarian conflict in Northern Ireland.


France accused the United States of seeking to undermine international talks to update taxation for the digital age and urged Europe to prepare an EU tax if the negotiations fail. Nearly 140 countries are negotiating the first major rewrite of international tax rules in a generation to account for the rise of big digital companies like Google and Amazon. Washington called for a pause after suggesting any deal should include a voluntary opt-in mechanism for US companies. Big digital service companies are often able to earn big revenues in their countries while booking the profits in lower tax countries such as Ireland. Some European countries have followed France in creating their own national digital services tax, which made France the target of US threats of retaliatory tariffs. French Finance Minister Le Maire renewed a call for EU countries to go ahead with a bloc-wide tax if there’s no international agreement, although Dublin has shut down previous attempts at the EU level.


The euro edged higher against a weaker dollar but gains were capped by the possibility that the European Central Bank could flag more policy easing if it deemed economic recovery and inflation are at risk from currency appreciation. The dollar resumed its downtrend following a US technology shares bounce that suggested an improvement in risk appetite. Elsewhere, dollar weakness allowed sterling to stabilise at $1.3016, having dipped to a six-week low of $1.2839 yesterday after Britain unveiled draft legislation which raises risks of it exiting the EU single market in four months time with no trade agreements in place. The pound slipped to 90.90 pence per euro close to a six-week low. The Australian dollar fell to $0.7273 amid concerns abound worsening diplomatic ties with China and another outbreak of coronavirus in the state of Victoria.



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