Pound Euro Exchange Rate Shoots Up on Dovish Forward Guidance
(Updated 15:50, 15/06/2022) The Pound Euro (GBP/EUR) exchange rate catapulted up this afternoon as Euro sentiment declined following the European Central Bank (ECB)’s unscheduled meeting today.
EUR investors had hoped for definitive measures that would serve to tackle inflation across the bloc and alleviate the situation in more indebted nations such as Italy, Spain and Greece. Instead, the central bank gave what was considered to be a vague statement lacking any concrete agenda. Following the meeting, the ECB said:
‘The Governing Council [has] decided to mandate the relevant Eurosystem Committees together with the ECB services to accelerate the completion of the design of a new anti-fragmentation instrument for consideration by the Governing Council.’
The Euro fell around a half a percent against the dollar after the ECB statement while Italian yields jumped around 7 basis points.
Original article continues below:
GBP/EUR Exchange Rate Trades Flat ahead of EU Data
The Pound Euro (GBP/EUR) exchange rate is subdued this morning ahead of industrial production data and the publication of the Euro area’s trade balance. Also buoying the Euro (EUR) against its peers is an upcoming meeting of the European Central Bank (ECB)’s rate-setting governing council.
At the time of writing, GBP/EUR is trading at €1.509, virtually unchanged from today’s opening levels.
Euro (EUR) Firms on ECB Reassurances
The Euro is trending up against its rival currencies this morning on news that the European Central Bank will hold an unscheduled meeting to discuss the recent sell-off in government bonds, which pushed yields sharply higher.
Although investors do not know what will be said, the fact of the meeting has already brought down painfully high yields, including those on Italy’s 10-year bond. The bond yield hit an eight-year high earlier this week but has since fallen 20 bps, or 4%.
Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, speculates upon what the ECB might come out with:
‘We should get a statement along the lines reflecting a willingness to act and then maybe they will also task committees to work on options, this is what was missing from last week [when the ECB had a scheduled meeting].
We might get an ECB statement along the lines of Isabel Schnabel’s speech. Some details about PEPP reinvestments would be welcome.’
For context, policymaker Isabel Schnabel said yesterday that the ECB was ‘closely’ monitoring the bond yield situation and was ready to deploy both existing and new tools if it found that the market moves were ‘disorderly’.
Later this morning, Euro area industrial production is featured in the docket alongside the area’s trade balance. If industrial production rose in April as forecast, EUR could enjoy further upside – although this may be tempered by a widening of the trade deficit.
Pound (GBP) Climbs as USD Investors Turn Bearish
The Pound (GBP) is firming against the majority of its peers this morning ahead of the eagerly awaited Federal Reserve decision. Moderate downside in the US Dollar (USD) ahead of the meeting inspires upside in the currency’s rivals; market mood is upbeat as investors anticipate a proactive response to US inflation.
Closer to home, speculation ahead of the Bank of England (BoE)’s interest rate decision on Thursday risks subduing Sterling sentiment.
Analysts at ING Bank postulate:
‘It does appear to us that a lot of negatives regarding a slowdown in the UK economy are in the price, but there is still some downside risk related to a potential re-pricing in the Bank of England rate expectations, which continue to be overly hawkish (more than seven rate hikes expected by year-end.’
Markets remain afraid that overly aggressive monetary tightening policies from major central banks could risk derailing the global economic recovery and triggering a recession.
Further pressuring GBP are political concerns regarding the Northern Ireland Protocol and Scottish referendum news.
In a news item released last night, the Guardian reported that ministers believe they have largely muted Conservative opposition to the Northern Ireland protocol bill – yet one leading Tory critic says no MP should be voting for a breach of international law.
Meanwhile, Scotland’s first minister Nicola Sturgeon has said that her government has an ‘indisputable mandate’ for another independence vote and is ready to set out more details without the approval of the UK government.
Pound Euro Exchange Rate Forecast: ECB Meeting to Affect Trading?
Looking ahead, today’s meeting of the ECB is likely to inspire near-term movement in the Pound Euro exchange rate. If the central bank strikes a hawkish tone, the single currency may climb further.
Elsewhere, risk sentiment and political affairs remain the main movers of Sterling exchange rates, given a lack of significant UK data. If the NI protocol bill continues to spark division, the Pound may face headwinds.