Pound Euro (GBP/EUR) Exchange Rate Soars as ECB Slows Bond-Buying
(Updated 16:00, 9/9/20) The Pound Euro (GBP/EUR) exchange rate has continued to climb today, hitting a three-week high, after the European Central Bank (ECB) decided to slow its Pandemic Emergency Purchasing Programme (PEPP).
The ECB voted unanimously to run its pandemic bond-buying programme at ‘a moderately lower pace’ over the next three months but will not look to reduce the total amount of PEPP aid. With ECB President Christine Lagarde insisting that this is not a taper, the move sets the ECB apart from the Federal Reserve and the Bank of England (BoE), which have both signalled their intention to begin unwinding monetary stimulus.
The decision came as growth forecasts for the Eurozone were revised up amid a fast economic recovery and successful vaccination programme but concerns over the Delta variant and economic fragility persisted.
At the time of writing, the Pound Euro pair is trading at €1.1716, up 0.5% from this morning’s opening level, as the distinction between slowing the pace of purchases and actually tapering monetary stimulus seems to have dented the Euro (EUR).
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Climbs as Investors Await ECB Policy Decision
The Pound Euro (GBP/EUR) exchange rate is on the rise this morning after Germany’s balance of trade figure missed forecasts. The pair is currently trading around €1.167, up 0.2% from the session’s opening rate of €1.165.
EUR investors are also bearish in the run up to the European Central Bank’s (ECB) policy decision this afternoon, with many analysts expecting the central bank to maintain its current pandemic emergency purchasing programme (PEPP).
Euro (EUR) Subdued ahead of ECB Meeting
The Euro (EUR) is trending lower this morning after Germany’s balance of trade figure for July failed to meet market expectations.
Germany’s trade surplus came in at €18.1bn, higher than the previous month’s €16.2bn but below forecasts of €21.1bn. The figure is also lower than the country’s trade surplus in July last year and seems to be part of a downward trend, with the surplus gradually narrowing since 2018.
In addition, EUR investors are hesitant to place any aggressive bets ahead of the ECB decision later today. While the bank is expected to keep interest rates unchanged, last week’s surge in inflation raised questions over when the central bank would start tapering its PEPP bond purchases.
ECB policymakers have expressed varying opinions in recent days.
Governing Council member Robert Holzmann hinted that monetary policy may be normalised sooner than analysts expect, while fellow Governor Boštjan Vasle suggested that ‘highly accommodative’ policy is still needed due to the economic dangers of the Delta variant.
Meanwhile, the bank’s President Christine Lagarde suggested last week that a more targeted approach was needed:
‘it seems to me now that policymakers have to be almost surgical — it’s no longer a question of massive support, it’s going to be a question of focused, targeted support in those sectors that have been badly hurt.’
With these mixed messages, investors may wait for clarity following the decision before placing bets.
Pound (GBP) Gains on Hawkish BoE Comments
With the single currency subdued, the Pound Euro exchange rate has managed to make gains despite some obstacles.
The upside in the Pound (GBP) seems to be driven by recent comments from the Bank of England (BoE) Governor, Andrew Bailey. Testifying in front of Parliament on Wednesday, Bailey commented on the UK’s remarkable economic recovery, though he did warn against complacency and highlighted that growth may be slowing.
Bailey also revealed that he is among the BoE officials who think the UK economy has met the minimum criteria for monetary policy to be tightened, raising the likelihood that the central bank will hike interest rates next year.
These comments boosted Sterling yesterday afternoon and have continued to provide a tailwind this morning, despite the government winning a vote on its plan to raise national insurance contributions.
In a move that has been criticised by business groups and opposition MPs, the government will raise national insurance contributions for employees and employers by 1.25%.
Economists and business leaders have warned that this will damage jobs growth and stifle entrepreneurialism by piling more pressure on already-struggling businesses.
Stephen Phipson, CEO of the manufacturers’ organisation Make UK, commented:
‘Economic history tells us that job cuts are most likely when the economy starts to open again after a downturn because firms need the capital to reset. After witnessing large scale redundancies at the height of the pandemic and the plug being pulled on the furlough scheme, Government should be putting in place measures to protect jobs and incentivise recruitment.
‘An increase to NI would have the opposite effect. As such Government must examine others streams of raising revenue; we need to nurture growth not put an anchor on recovery.’
The news dented Sterling yesterday and may be limiting GBP’s gains today.
Pound Euro Exchange Rate Forecast: ECB Decision in the Spotlight
We could see some significant movement in the Pound Euro exchange rate after the ECB meeting this afternoon, depending on the outcome.
Many analysts think it is unlikely that the central bank will decide to taper bond purchases today, but it’s not impossible. As such, any hawkish hints could boost the single currency while a dovish tone could dent it. We may also experience some volatility as markets digest the decision.
As for the Pound, with a lack of UK data today and the national insurance rise hitting headlines, Sterling could lose steam as the day progresses.