Pound Euro Exchange Rate Bounces off Ten-Day Low amid Commentary from ECB and BoE Officials

Pound Euro (GBP/EUR) Exchange Rate Rebounds but Remains Down on the Day

(Updated 16:20, 21/4/22) The Pound Euro (GBP/EUR) exchange rate bounced off a ten-day low today as slightly hawkish comments from Bank of England (BoE) policymaker Catherine Mann boosted the Pound (GBP).

GBP/EUR initially tumbled today as European Central Bank (ECB) officials hinted at a coming rate rise as early as July.

However, remarks from Mann helped Sterling recover some of its losses. In a speech today, Mann highlighted her fears about rising inflation in the UK. The most impactful comment came as the policymaker took questions. Mann said:

‘We can look at whether or not an additional 25 basis points or more might be necessary in order to keep inflation anchored’.

The ‘or more’ implies that Mann is considering a 50-bps rate hike at the BoE’s next meeting. This lent Sterling some support, allowing GBP/EUR to regain some lost ground.

At the time of writing, GBP/EUR is trading at around €1.2015. This is up 0.5% from today’s lowest point but down 0.15% from this morning’s opening level.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Tumbles as Investors Bet on July Rate Rise from ECB 

The Pound Euro (GBP/EUR) exchange rate plunged this morning as hawkish commentary from European Central Bank (ECB) officials saw the Euro (EUR) surge higher. 

Meanwhile, a lack of UK data and the ongoing ‘partygate’ scandal leave Sterling without much support. 

Euro (EUR) Jumps on Hawkish ECB Comments 

The Euro soared higher across the board this morning as ECB policymakers signalled that more hawkish monetary policy could be coming soon. 

Yesterday, Governing Council member Martin Kazaks said that a July rate hike is ‘possible’. In an interview with Bloomberg, Kazaks said: 

‘A rate increase in July is possible, and I have no reason to disagree with what markets are pricing for the second half of the year. We are on a solid path of policy normalization [where] we step-by-step gradually get to zero and then above.’ 

This morning, two more policymakers have signalled that a more hawkish approach may be appropriate. 

Governing Council member Pierre Wunsch said: 

‘Without any really bad news coming from that front, hiking by the end of this year to zero or slightly positive territory for me would be a no brainer’. 

Meanwhile, ECB Vice-President Luis de Guindos said that the bank’s asset purchase programme should end in July. He also echoed Kazaks’ opinion that the ECB could hike rates in the same month. De Guindos commented: 

‘My opinion is that the programme should end in July and for the first rate hike we will have to see our projections, the different scenarios and, only then, decide… 

‘From today’s perspective, [raising rates in] July is possible and September, or later, is also possible’. 

The Euro has suffered in recent months as the ECB has resisted tightening policy, putting it at odds with other major central banks. These are by far the strongest signals yet that a rate hike may be imminent. As a result, the single currency is strengthening. 

Pound (GBP) Subdued amid ‘Partygate’ Scandal 

Meanwhile, the Pound (GBP) is muted this morning amid a lack of UK economic data. 

As a result, concerns over the UK’s domestic political situation may be at the forefront of investors’ minds. Today MPs will vote on whether or not Prime Minister Borish Johnson should be investigated for misleading parliament over the ‘partygate’ scandal. 

The situation means that Johnson’s future is once again uncertain. Additionally, some analysts are worried that it is distracting the government in the midst of the cost-of-living crunch and the geopolitical crisis of the Russia-Ukraine war. 

This instability is bad for the Pound, and today GBP has slipped sharply against EUR. 

Pound Euro Exchange Rate Forecast: GBP/EUR to Stage a Comeback? 

As the day unfolds, the Euro may find its gains limited. While the prospect of rate rises has certainly helped EUR, the ECB still remains far behind its global counterparts. The Bank of England (BoE), for instance, has already enacted three consecutive rate hikes, bringing the Bank Rate back to pre-pandemic levels. 

This afternoon, BoE policymaker Catherine Mann is due to speak. BoE officials have sounded dovish recently. However, last week’s UK CPI came in above expectations. If Mann sounds more hawkish today then GBP could recover some ground. 

We also have the flash Eurozone consumer confidence indicator for April this afternoon. Forecasters expect morale in the bloc to have dropped to a near two-year low. If so, EUR could erase some of its gains. 

Samuel Birnie

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