Pound Sterling Euro (GBP/EUR) Exchange Rate News: ECB in the Spotlight, Could the Bank Shock Markets With a Rate Cut this Month?

GBP/EUR Exchange Rate Steady Ahead of ECB Rate Decision

The Pound Sterling to Euro (GBP/EUR) exchange rate is in a holding pattern this morning as investors brace for the European Central Bank’s (ECB) policy decision later this afternoon.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1204, virtually unchanged from this morning’s opening rate.

Dovish ECB to Propel the Euro (EUR) Lower?

The Euro (EUR) finds itself in the spotlight today as the European Central Bank (ECB) prepares to deliver its latest policy decision.

With ECB President, Mario Draghi having signalled at the bank’s Sintra conference last month that fresh monetary stimulus is coming, markets are betting that the bank will soon cut interest rates to a new record low.

But the question is when?

Previously the general consensus was that the ECB would hold on to until September before cutting rates, to coincide with the publication of the ECB’s latest economic forecasts, using this month’s policy meeting to alter its forward guidance and signal to markets that a cut was on its way.

Florian Hense, European economist at Berenberg Bank suggests:

‘In response to weak growth and still subdued inflation, the ECB will likely adjust its guidance in July and vow to keep rates at “present or lower” rather than just at “present” levels.’

However over the past week we have seen the market starting to price in a higher probability that the ECB could cut this month, in an attempt to ‘stay ahead of the curve’.

This also appears to have been spurred on by a particularly abysmal Eurozone manufacturing PMI print on Wednesday, which propelled the odds of a cut of 10 basis points this month climb as high as 50%.

Whether the ECB chooses to cut rates or not this month will determine how extreme a swing in the Euro we see today, with the altering of its forward guidance only likely to modest losses in the single currency compared to a sharp sell-off in the case of a cut.

How Might Boris Johnson’s Statement to MP’s Impact the Pound (GBP)?

In the meantime, potentially impacting Pound (GBP) exchange rates this morning will be Boris Johnson’s first statement to parliament since becoming Prime Minister.

Johnson will use his statement to outline his priorities for government, with GBP investors of course watching closely for any details on his plans for Brexit.

Speaking in front of Downing Street yesterday after becoming PM, Johnson said:

‘We are going to fulfil the repeated promises of parliament to the people and come out of the EU on October 31, no ifs or buts.’

Observers remain sceptical on the new PM’s ability to actually persuade the EU to agree to a new deal however, especially one which can also win the support of MP’s by the end of October as he has stated is his aim.

This could see the Pound relinquish some of its recent gains if markets remain wary of the apparent rising risks of a no-deal Brexit.

Matthew Andrews

Contact Matthew Andrews