Pound Euro Exchange Rate Weakens Following ECB Meeting Minutes
(Updated 16:45, 07/04/2022) The Pound Euro (GBP/EUR) exchange rate fell through today’s session following the publication of March’s meeting minutes from the European Central Bank (ECB).
The minutes revealed that many of the ECB’s governing council members believe persistently high inflation calls for immediate further steps towards monetary policy normalisation; inflation was projected to remain above target in 2023, with baseline inflation projections for 2024 arguably already on target.
Policymakers also argued that, for all practical purposes, the three forward guidance conditions warranting a rate hike have already been met. It was suggested that, in such circumstances, the governing council could no longer afford to look through higher inflation.
Considering the hawkish tone of the minutes, the single currency enjoyed tailwinds while the Pound (GBP) missed further gains on continuing criticism of the government’s response to UK living costs.
In the spotlight this afternoon was Boris Johnson’s energy security plan, which was dismissed by some as a missed opportunity to bring down bills by funding energy efficiency: instead of funding onshore windfarms and improving insulation standards, North Sea drilling won the government’s blessing, and ministers appeared to open the door to fracking.
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GBP/EUR Exchange Rate Rises on Central Bank Policy
The Pound Euro (GBP/EUR) exchange rate is firming this morning ahead of the release of March’s meeting minutes from the European Central Bank (ECB). According to economists, the Pound (GBP) is benefitting from Bank of England (BoE) policy tightening prospects, as the Euro (EUR) sinks on Europe’s Russian energy ties.
At the time of writing, GBP/EUR is trading at €1.2024, up 0.3% from today’s opening levels.
Euro (EUR) Comes Under Selling Pressure despite Upbeat Data
The Euro faces downside this morning in spite of better-than-expected German industrial production data.
Production in February grew by 0.2% in the bloc’s largest economy as the manufacture of consumer goods increased – however, the federal statistical office warned that figures indicated a continuing shortage of primary products.
Furthermore, the German Economy Ministry said that the production gap caused by shortages was unlikely to be closed any time soon due to the uncertainty caused by the war.
Adding to EUR downside, European leaders were unable to reach an agreement yesterday on banning Russian coal, although they said it was due to a technical issue and vowed to discuss it again today.
The bloc has come under criticism in recent days for its continued purchase of Russian energy exports, with the EU’s top diplomat pointing out that union countries have paid Russia €35bn since the start of the war.
Nevertheless, Martin Brudermüller, the chief executive of chemical producer BASF, argues that ‘turning off the taps’ would cause irreversible damage:
‘Do we want to blindly destroy our entire national economy? What we have built up over decades?’ said Brudermüller; ‘I think such an experiment would be irresponsible.’
Pound (GBP) Trends Up on Russian Divestment, BoE Optimism
The Pound (GBP) is rising against its peers today on recovering risk sentiment, alongside upbeat forecasts for BoE monetary policy tightening.
Investor morale is supported by news that oil giant Shell is pulling out of Russia, despite an estimated cost to the company of up to $5bn.
Last month, Shell indicated that it would withdraw from its involvement in all Russian hydrocarbons, including crude oil, petroleum products, gas and natural liquefied gas – and pledged to stop importing Russian crude while shutting service stations in Russia along with aviation fuel and lubricant operations.
The oil company hopes that some of the shortfall will be made up by soaring energy prices, which jumped following Russia’s invasion of Ukraine.
Also buoying Sterling are relatively hawkish expectations for the UK’s central bank. According to economists at UBS, investors can seek to benefit from the diverging pace of central bank rate rises: the US Dollar (USD), the British pound and the Australian Dollar (AUD) are their preferred currencies.
Pound Euro Exchange Rate Forecast: Euro Area Retail Sales to Lift Euro?
Looking ahead, retail sales in the Euro area are expected to have increased in February by 0.6%, from a 0.2% rise in January. If the data prints as expected, the single currency may enjoy tailwinds.
Meanwhile, a lack of significant UK data leaves the Pound to trade on external factors. NATO meets today to discuss providing Ukraine with more weapons – if Ukraine’s appeal is met, market sentiment may improve, boosting GBP.