Euro is choppy this morning after a mixed day of economic releases, and as hopes of a Brexit deal strengthened sterling. Eurozone and German services and composite PMI both came in below expectations yesterday. Meanwhile, the ECB’s Luis de Guindos has raised the spectre of a ‘vicious cycle of declining inflation expectations [and] falling inflation’ which becomes almost self-fulfilling.
European leaders are still divided on the issue of inflation, with Finland’s Olli Rehn saying that they should ‘take care to avoid the harm from prolonged low inflation and zero interest rates’, as it would hamper the ECB’s scope to use monetary policy to influence the economy.
European policymakers have been less than convinced over the proposed Brexit plans. The European Parliament’s committee that oversees Brexit has released a statement saying ‘The UK proposals do not match even remotely what was agreed as a sufficient compromise.’ As for European heads of government, they largely seem to be letting Ireland lead the charge. If Leo Varadkar disagrees with the plan, then it seems unlikely to progress. So far, Donald Tusk has said he remains ‘open but unconvinced.’
