GBP/EUR Exchange Rate Ticks Up Slightly as Euro Gains Capped
(Updated 17:00, 27/08/21) Both the Pound (GBP) and Euro (EUR) ought to have gained from this afternoon’s speech from Federal Reserve Chairman Jerome Powell, which signalled that tapering would likely commence this year, but failed to supply a timeline. The USD saw significant losses in the moments after the speech.
The Euro is struggling to climb, however, and has seen some slight losses against the Pound. This may be as a result of the ECB’s accounts release revealing division against policymakers yesterday.
On the other hand, EUR’s downside could be the result of rising infections in Eurozone countries. The European Centre for Disease Prevention and Control (ECDC) recently revealed that travel to Germany is becoming more dangerous, as the states of Bavaria, Baden-Wurttemberg, Bremen, Rheinland-Pflaz and Hessen are recategorised from orange to red.
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GBP/EUR Exchange Rate Muted as ECB Officials Debate Forward Guidance
The Pound Euro (GBP/EUR) exchange rate seems to have capped its downside this morning as yesterday’s European Central Bank (ECB) accounts show division amongst policymakers. The German and Belgian central bank chiefs opposed new wording that stipulates rates will not rise until the ECB sees inflation reaching 2% ‘well ahead’ of the end of its projection horizon.
At the time of writing, GBP/EUR is trading at €1.1662, virtually unchanged from today’s opening levels.
Euro (EUR) Faces Headwinds Over ECB Rate Guidance
The Euro (EUR) has capped its gains against the Pound (GBP) this morning as yesterday’s ECB accounts revealed disagreements between the bank’s policymakers. Revisions to the ECB’s final proposal were made several times to appease the bank’s more hawkish members, the accounts of July’s meeting showed.
While policymakers agreed that revising forward guidance on rates would provide a credible commitment to bringing inflation up to the new target, several members argued that the wording of forward guidance could be perceived as deviating from the medium-term orientation of the monetary policy strategy.
According to the published accounts:
‘A few members upheld their reservations, as the amended formulation did not sufficiently address their concerns. These related in particular to the implied likelihood and persistence of overshooting, and being seen as promising to keep interest rates at their present or lower levels for a very long time period without an explicit escape clause.’
Euro losses in response to the accounts were capped by weakness in the US Dollar. As a result of the strong negative correlation between USD and EUR, downside in the former equals support for the latter.
Ahead of Federal Reserve Chairman Jerome Powell’s speech this afternoon, the Euro is holding the higher ground: risk appetite has improved despite terror in Afghanistan and ongoing coronavirus concerns.
Pound (GBP) Stabilises Despite Lack of UK Data
The Pound is trading fairly level against the majority of its peers today, despite vulnerability as a result of a data shortfall.
Coronavirus optimism is lending support to the currency: even though cases are rising as summer comes to a close and school holidays approach their end, experts are confident that we don’t need to panic.
According to a Sky News analysis, the relationship between cases and deaths remains very different to how it was this time last year- a crucial observation. It seems that the vaccination programme has minimised the number of hospitalisations and fatalities amongst Covid sufferers.
Data analyst Ed Conway remarks: ‘there are more people vaccinated now, and an ever-increasing cohort of people (both vaccinated and not) who have caught and recovered from COVID, which means the country’s combined resistance to COVID is considerably higher than in all previous episodes.’
Sterling is also benefitting from the risk-on attitude prompted by the US Dollar’s weakness. Risk sentiment is heightened as vaccine rollouts worldwide inspire confidence amongst investors.
Pound Euro Exchange Rate Forecast: EUR to Gain on Dovish Powell Speech?
Looking ahead, the Pound Euro exchange rate is likely to see movement on this afternoon’s announcement from Fed Chairman Powell.
If Powell strikes a dovish tone, as expected by many, the US Dollar is likely to suffer: lending tailwinds to the Euro. Given the escalating number of Covid cases in America, it seems likely that the Fed will err on the side of caution.
Domestic coronavirus developments in the UK and EU will also likely affect the GBP/EUR exchange rate. If UK analysts remain optimistic about the virus’s spread, the Pound could see gains against its peers later in the session.