Pound Euro (GBP/EUR) Exchange Rate Tumbles to Nine-Day Low following ECB Comments
(Updated 14:15, 3/2/22) The Pound Euro (GBP/EUR) exchange rate has slumped from a two-year high to a nine-day low after the European Central Bank (ECB) press conference got underway.
Although the ECB left policy unchanged, as expected, markets are excited by comments from ECB President Christine Lagarde. When pressed about the possibility of a 2022 rate hike, Lagarde did not repeat previous remarks that a rate rise this year is unlikely. Instead, she said that policymakers would be driven by data and reassess the situation in March.
Markets took this as a hint that the ECB’s stance may be shifting after Eurozone inflation unexpectedly rose to a new record high earlier this week.
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Pound Euro (GBP/EUR) Exchange Rate Soars on BoE Rate Rise
(Updated 12:15, 3/2/22) The Pound Euro (GBP/EUR) exchange rate has skyrocketed to a two-year high today as the Bank of England (BoE) raised interest rates for the second consecutive time, hiking its Bank Rate from 0.25% to 0.5%.
Although markets had priced in a rate hike, the decision still gave Sterling a significant boost. In addition, members of the Monetary Policy Committee (MPC) seemed more hawkish than economists had expected.
The MPC voted 5-4 in favour of hiking to 0.5%, with four of the officials voting to raise the Bank Rate to 0.75%. The BoE also expects inflation to hit 7.25% in April and remain above target for longer than expected. This suggests that the British central bank will hike harder and faster than traders had anticipated.
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Pound Euro (GBP/EUR) Exchange Rate Quiet as Investors Await ECB and BoE
The Pound Euro (GBP/EUR) exchange rate has wavered so far this morning, with investors seemingly cautious ahead of the Bank of England (BoE) and European Central Bank (ECB) interest rate decisions.
Additionally, the UK energy regulator Ofgem will announce the new energy price cap and Rishi Sunak, Chancellor of the Exchequer, will outline plans to support struggling households.
Pound (GBP) Mixed on Cost-of-Living-Crunch Day
The Pound (GBP) is mixed so far this morning, with a number of announcements due today that could have significant impact on Sterling.
First off, Ofgem is due to announce the new energy price cap coming into effect in April. With energy prices soaring, experts expect the cap to rise by a huge 30%.
Then Chancellor Rishi Sunak will hold a press conference to announce how the government intends to tackle the looming cost-of-living crisis. Along with surging energy bills, households face higher taxes, rising inflation, limited wage increases and rising interest rates.
And finally, the Bank of England holds its first meeting of 2022. Economists expected the bank to hike its Bank Rate from 0.25% to 0.5%.
Torsten Bell, CEO of the Resolution Foundation, says that it is ‘cost of living crunch day’.
GBP investors are understandably hesitant this morning, with a lot of uncertainty and mixed feeling surrounding the Pound.
Euro (EUR) Muted ahead of ECB
Meanwhile, the Euro (EUR) also seems mixed. EUR investors are also seemingly waiting on the sidelines ahead of the central bank meetings.
The ECB has repeatedly said it does not foresee hiking rates in 2022 (although markets are not convinced). However, yesterday Eurozone inflation unexpectedly edged higher, hitting a fresh record high of 5.1%.
EUR investors may be hopeful that the ECB will start to become more concerned about upside inflation risks. As such, the Euro seems to be holding its ground against the Pound so far this morning.
Pound Euro Exchange Rate Forecast: Sharp Movement Could Be Ahead
We could see some significant movement in the Pound Euro pair as the session unfolds, with uncertainty surrounding the upcoming high-impact events.
If Ofgem’s energy cap comes in higher or lower than expected, this could dent or support the Pound, respectively. Rishi Sunak’s plan to tackle the cost-of-living crisis could also cause some movement. If Sunak’s measures do not go far enough then this could weigh on GBP.
The expected BoE rate hike will likely provide the Pound with some support. However, investors will also be looking carefully at the bank’s forward guidance.
Overall, Sterling’s strength may depend on whether the three announcements create more or less concern over the cost-of-living crisis.
As for the Euro, if the ECB strikes a more hawkish tone in its forward guidance today then the single currency could catch some bids. If the bank instead continues to argue that inflation is transitory then EUR may stumble.