Pound Euro (GBP/EUR) Exchange Rate Rises amid ECB Slowdown Speculation
(Updated 16:43 27/10/22)
The Pound Euro (GBP/EUR) exchange rate gained today despite the European Central Bank’s announcement of a 0.75% interest rate hike. The move had been largely priced in by markets, meaning that it had little negative impact on the currency pair.
In a statement following the announcement, the ECB said
‘The Governing Council took today’s decision, and expects to raise interest rates further, to ensure the timely return of inflation to its 2% medium-term inflation target. Inflation remains far too high and will stay above the target for an extended period.’
Speculation that the ECB would now being to slow its pace of policy tightening was the likely cause behind GBP/EUR’s gains following the decision. Analysts expect a 0.5% rate hike at the central bank’s December meeting, with more dovish decisions in the following months.
Viraj Patel, global macro strategist at Vanda Research, told Reuters:
‘The ECB is living on the edge of a dovish pivot. It’s clear that this is a central bank that wants to front-load rate hikes to control inflation. But they are also wary that they are not in control of a lot of external growth and market factors that can act as a circuit breaker to the hiking cycle.’
A surprise recovery in UK retail sales volumes for October also pushed the currency pair higher today.
At time of writing the GBP/EUR exchange rate is at around €1.1593, which is up roughly 0.5% from this morning’s opening figures.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Trends Sideways ahead of ECB Meeting
The Pound Euro (GBP/EUR) exchange rate is trading within a narrow range today. Muted bets ahead of the European Central Bank’s (ECB) interest rate decision later today could be limiting the pair’s losses.
On the other hand, concerns regarding the delay of the UK government’s budget announcement may be capping gains for GBP/EUR.
At time of writing the GBP/EUR exchange rate is at around €1.1516, virtually unchanged from this morning’s opening figures.
Euro (EUR) Subdued Ahead of ECB Interest Rate Decision
The Euro (EUR) is muted ahead of the ECB’s interest rate decision later today. A return of global risk appetite may also be weighing on the single currency.
The central bank is widely expected to raise interest rates by 0.75% as forecast to combat soaring inflation. The ECB is hoping to head off inflation-motivated price growth across the Eurozone.
DWS asset management economist Ulrike Kastens said:
‘Above all, concerns about the high inflation rates that will also accompany us in 2023 and the risk that inflation expectations could become de-anchored are likely to prompt the ECB to take this bold step.’
Markets are also anticipating that the ECB will signal that further interest rate hikes are to come, although the scale of these hikes remains uncertain.
The Euro may also be seeing reduced bets amid further escalations in the Russia-Ukraine conflict. Ukrainian forces are advancing closer to the city of Kherson ahead of an anticipated counteroffensive.
Pound (GBP) Ticks Lower as Markets Weigh Budget Delay
The Pound (GBP) is edging lower against many of its rivals today. Markets seem to be having a delayed reaction to the postponed reveal of the UK’s medium-term fiscal plans. Sterling is likely being underpinned by continued confidence in Rishi Sunak’s premiership, however.
Wednesday saw UK Chancellor Jeremy Hunt announce that the reveal of the government’s fiscal plans would be delayed until 17 November. Hunt promised that the new date would now be a full autumn statement.
There is speculation that PM Sunak will reconsider the planned tax rises and spending cuts previously planned by Liz Truss.
The delay of the budget announcement may also be dampening enthusiasm in Sterling due to uncertainty over the Bank of England’s (BoE) forward path. Whilst markets had been pricing in a sizeable rate hike, the central bank must now act without any clear idea as to government policy.
GBP/EUR Exchange Rate Forecast: Will ECB Go Ahead with Bumper Rate Hike?
Today is set to be a busy day for the Euro. The ECB’s interest rate decision could see the single currency leap if the central bank pushes ahead with a 0.75% hike.
The accompanying press conference and statement from ECB President Christine Lagarde could prompt additional movement in the single currency. Investors will be looking for any hints of the central bank’s forward outlook.
On the other hand, a range of economic data from Germany on Friday could weigh on EUR. The German economy is expected to contract in the year’s third quarter, signalling a potential recession. An uptick in October’s inflation could help temper these losses, however.
Looking ahead for the Pound, distributive trades figures from the Confederation of British Industry (CBI) later today could pull Sterling lower if they print as forecast. The downturn in retail sector performance could add to the poor long-term outlook for the UK’s economy.
Also later today, a speech from BoE policymaker Sam Woods could see Sterling tick higher if he gives any signals regarding the central bank’s rate hike path.