Pound Euro (GBP/EUR) Exchange Rate Stabilises on Bets of Dovish ECB Announcement

ECB Meeting Jitters Limit Pound Euro (GBP/EUR) Exchange Rate Weakness

Speculation ahead of today’s European Central Bank (ECB) policy announcement kept the Pound Sterling to Euro (GBP/EUR) exchange rate under pressure.

While no immediate policy action looks likely from the ECB investors continued to bet on the possibility of another dovish message from policymakers.

If ECB President Christine Lagarde leaves the door open for further monetary stimulus to come before the end of the year this could weigh heavily on the Euro (EUR).

However, after a Bloomberg report suggested that the ECB’s economic forecasts could prove more positive than initially thought this helped to limit the downside potential of the single currency.

Fresh Signs of ECB Dovishness May Drive Euro Lower

As markets widely expect to see the ECB attempt to talk down the Euro, given its recent bullishness, this could diminish the impact of Lagarde’s words.

Even so, bets that further loosening is on the cards in the months ahead could still put a dampener on EUR exchange rates this afternoon.

The case for the ECB to take action has strengthened significantly in recent weeks, given the poor performance of Eurozone inflation and growth data.

Unless the central bank defies expectations with a more optimistic assessment of the economic outlook the GBP/EUR exchange rate could find a solid rallying point in the wake of the meeting.

Elevated Brexit Tensions Keep GBP Exchange Rates Under Pressure

Support for Pound Sterling (GBP) looks set to remain muted in the near term as the penultimate round of Brexit talks between the UK and EU unfolds.

Lingering tensions over Boris Johnson’s proposed Internal Market bill could stoke continued weakness for GBP exchange rates, with the odds of a hard Brexit scenario rising.

Until the two sides can show signs of progress towards an agreement on key issues demand for the Pound may struggle to pick up.

With the UK economy already showing signs of struggling in the face of ongoing Covid-19 disruption the possibility of a no-deal scenario casts a dark shadow over its prospects in 2021.

Negative UK GDP Set to Weigh on Pound Demand

August’s NIESR monthly gross domestic product tracker may also put pressure on the GBP/EUR exchange rate ahead of the weekend.

After the -7.9% contraction seen in July forecasts point towards another negative reading of -6.3%, highlighting the pressure that the economy remains under.

Evidence that the UK is still failing to bounce back from the Covid-19 crisis would give investors little cause for confidence, weighing on demand for the Pound.

Even so, a positive showing from July’s monthly industrial and manufacturing production figures may limit the potential for further GBP/EUR exchange rate losses at this juncture.

Louisa Heath

Contact Louisa Heath


Related