Pound Euro (GBP/EUR) Exchange Rate Narrows as ECB Takes Data Driven Path
(Article updated 14:35, 16/3/23) The Pound Euro (GBP/EUR) exchange rate is narrowing this afternoon, following the European Central Bank’s (ECB) latest interest rate decision.
Accompanying the priced in 50bps hike, ECB President Christine Lagarde delivered a speech. Here, she signalled that the ECB were shifting to a data driven approach, preventing the Euro from consolidating much ground.
President Lagarde stated:
‘The elevated level of uncertainty reinforces the importance of a data-dependent approach to the Governing Council’s policy rate decisions.’
At the time of writing, GBP/EUR is trading around €1.1412, showing little movement from the morning’s opening rates. However, this does reflect a 0.3% recovery since the morning’s article.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Stumbles as Credit Suisse Rescued
The Pound Euro (GBP/EUR) exchange rate is weakening this morning, following the bailout of Credit Suisse.
At the time of writing, GBP/EUR is trading at around €1.1373, a fall of roughly 0.3% from the morning’s opening rates.
Euro (EUR) Recovers amid Credit Suisse Bailout
The Euro (EUR) is continuing to recover this morning, following news that Suisse Bank will receive a stimulus from the Swiss central bank.
Overnight, the embattled bank announced that it would receive around 50 billion Swiss francs. This ‘decisive action’ to rescue the bank appears to have calmed the markets, with European bank shares currently soaring.
Suisse Bank shares are now up around 30% from the morning’s starting rates, but remain depressed. Furthermore, the situation is being closely monitored by the European Central Bank (ECB). With this in mind, there is potential for a more dovish set of forward guidance to accompany the interest rate decision.
Francesco Pesole, FX Strategist at ING, commented:
‘In light of yesterday’s developments, those scenarios are possible only under the condition that the ECB can feel comfortable that going ahead with tightening will not come at the cost of excessive pain for the financial sector.’
As such, the common currency’s recovery may be being capped this morning, as the prospect of a hawkish rate hike diminishes.
Pound (GBP) Directionless amid Pared Back BoE Rate Hike Bets
The Pound (GBP) is trading aimlessly this morning, as a lack of macroeconomic data leaves Sterling without a clear driver.
While UK Chancellor Jeremy Hunt’s spring budget struck the right notes, calming notes yesterday, the chaos in European banks overshadowed it.
While the markets continue to react to the situation, GBP is being overshadowed. Furthermore, GBP is likely being capped by diminishing Bank of England (BoE) rate hike bets.
Due to the recent market turmoil, economists are now pricing in a 50% chance that the BoE will pause it’s rate-hiking cycle next week.
James Smith, Developed Markets Economists at ING, stated:
‘The BoE has made it clear that the bar to pausing rate hikes is now fairly low – certainly lower than the Fed and ECB have recently been indicating. The chances of ‘no change’ are much higher than they were last week.’
However, a risk-on market mood may be cushioning GBP this morning, due to the Pound’s increasingly risk-sensitive nature.
Pound Euro (GBP/EUR) Exchange Rate Forecast: ECB in Focus
Looking ahead for the Euro, the European Central Bank are due to publish their interest rate decision this afternoon.
Owing to the recent chaos in the European banking sector with Credit Suisse, the pressure is on the ECB to deliver rational forward guidance. As the effects of the rate hikes take effect, the impact may begin to be severe on the bloc’s economy.
As such, a firmly hawkish forward guidance may do little to inspire EUR investors. With the ECB due to publish macroeconomic projections, a positive outlook may strengthen EUR.
For the Pound (GBP), the data calendar is very thin towards the end of the week. Because of this, the recent UK budget may be the core driver of movement, as investors pore over the details.