Pound Euro Exchange Rate Subdued on Hawkish ECB Remarks
The Pound Euro (GBP/EUR) exchange rate is subdued this morning in response to comments by European Central Bank (ECB) President Christine Lagarde.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1625. Down roughly 0.2% from this morning’s opening rate.
Euro (EUR) Buoyed by Lagarde Speech
The Euro (EUR) is strengthening this morning after Lagarde struck a hawkish chord in a speech at the ECB’s annual Sintra Forum.
EUR exchange rates firmed as Lagarde warned the ECB’s fight against inflation is far from over.
The Eurozone’s recent CPI releases have pointed to a sharp deceleration of inflation in recent months. This has tempered demand for the Euro as investors speculated the ECB may be reaching the end of its hiking cycle.
However, Lagarde pushed back against this speculation. She warned inflation is likely to remain high for too long and the bank its committed to returning inflation to its 2% target.
Speaking at the ECB’s 2023 Forum on Central Banking, Lagarde said:
‘Monetary policy currently has only one goal: to return inflation to our 2% medium-term target in a timely manner. And we are committed to reaching this goal come what may.
‘We have made significant progress but – faced with a more persistent inflation process – we cannot waver, and we cannot declare victory yet.’
In making it clear the ECB can’t take its foot off the pedal yet, Lagarde’s comments could help to underpin the Euro in the coming days.
Pound (GBP) Stifled by UK Economic Gloom
The Pound (GBP) is subdued this morning as markets remain concerned over the UK’s economic outlook.
Fears over the UK’s growth trajectory continue to weigh on Sterling sentiment. GBP exchange rates faced heavy resistance last week amid speculation the Bank of England (BoE) could hike the UK into a recession.
Economists forecast the BoE could tip the UK into a ‘shallow’ recession by the end of 2023. Markets speculate the BoE could raise rates as high as 6%.
Pound Euro Exchange Rate Forecast: ECB’s Sintra Policy Panel in the Spotlight
The ECB’s Sintra Forum continues on Wednesday, with the main event being a panel including Lagarde and BoE Governor Andrew Bailey.
Their comments on monetary policy could spark some volatility in the Pound Euro (GBP/EUR) exchange rate.
Given the recent concerns over the aggressiveness of the BoE’s hiking cycle, Bailey’s comments will likely be of a particular focus. If he pushes back against some of the more hawkish speculation regarding its interest rate trajectory could the Pound strengthen?
Meanwhile, if Lagarde maintains a hawkish tone the Euro could extend its bullish momentum.