Pound Euro Exchange Rate Buoyed in Run up to ECB Statement
The Pound Euro (GBP/EUR) exchange rate opens today’s session on the front foot, as EUR investors brace for the European Central Bank’s (ECB) latest policy decision.
At the time of writing the Pound Euro exchange rate is trading at around €1.1658, up roughly 0.3% from this morning’s opening rate.
Euro (EUR) to Tumble on Dovish ECB Forward Guidance?
The Euro (EUR) is on the defensive this morning, in anticipation of the ECB’s first interest rate decision since altering its inflation target earlier in July.
Following its long-awaited strategic review, the ECB adopted a new symmetric 2% inflation target, a shift from its previous target of ‘below but close to 2%’.
While no policy changes are expected from the ECB this month, EUR investors are bracing for changes to its forward guidance, following signals from ECB President Christine Lagarde that its guidance will need to change to reflect its new inflation target.
This could include extending its Pandemic Emergency Purchase Programme (PEPP) into 2021, according to some analysts.
Luigi Speranza, chief global economist at BNP Paribas, suggests:
‘We think policymakers’ commentary over the past week suggests that the ECB will go beyond just changing the forward guidance at its meeting on 22 July. Our bias is to think that we will get greater clarity on the post-PEPP environment as well, underscoring the ECB’s message of persistent accommodation.’
A dovish message such as this could put additional pressure on the Euro this afternoon, and potentially allow the GBP/EUR exchange rate to climb back to €1.17.
Pound (GBP) Muted amidst Ongoing Coronavirus Concerns
At the same time, the Pound (GBP) is trading without any strong directional bias so far this morning.
This comes amidst ongoing concerns over the resurgence of coronavirus cases in the UK, and the potential impact this is having on the UK economy.
GBP investors are particualrly concerned about the ‘pingdemic’, which is seeing thousands of people need to self-isolate after being pinged by the NHS Covid-19 app, leaving some businesses with severe staff shortages and undermining England’s reopening.
Pound Euro Exchange Rate Forecast: UK and Eurozone PMIs in the Spotlight on Friday
Looking ahead, to the end of this week’s session, the latest preliminary PMI releases from the UK and Eurozone are likely to act as key catalysts for the Pound Euro (GBP/EUR) exchange rate.
First up will be the Eurozone figures, which are expected to report that private sector activity in the bloc continued to accelerate this month, potentially lending some support to the single currency.
This will be quickly followed by the UK releases, which in contrast are forecast to show a modest slowing of growth this month in spite of the reopening of the final parts of the economy, possibly limiting the upside potential of Sterling.
Also influencing GBP exchange rates however will be the UK’s latest retail sales figures, which could be more supportive of the Pound amidst forecasts sales growth will have rebounded last month.