Pound Euro (GBP/EUR) Exchange Rate Slides amid ECB Panel Discussion
(Updated 16:40, 28/06/23) The Pound Euro (GBP/EUR) exchange rate fell sharply today, striking a two-week low, as central bank chiefs spoke at the European Central Bank’s (ECB) Sintra Forum.
ECB President Christine Lagarde gave the Euro (EUR) a boost by reiterating her hawkish stance on monetary policy. Lagarde once again said that interest rates would need to rise higher, and stay there for longer, to ensure inflation returned to the bank’s target level.
Meanwhile, Bank of England (BoE) Governor Andrew Bailey was far more coy. On the subject of market expectations for multiple further rate rises, Bailey said:
‘My response to that is, well, we’ll see.
‘We’re evidence driven. We’ll make our decisions based on that.’
Bank of England Governor Andrew Bailey says he's aware the market is pricing in more rate hikes from the BOE
His response to that? "We'll see" https://t.co/76LWSDlRm0 pic.twitter.com/kdjy0yM5eT
— Bloomberg TV (@BloombergTV) June 28, 2023
Bailey also said that it was better for the BoE to raise rates by 50bps at its June meeting rather than 25bps if it expected another 25bps hike in August, implying that another rate rise is not baked in.
This, paired with a developing crisis at UK utility Thames Water, heaped pressure on the Pound (GBP).
At the time of writing, GBP/EUR is trading at around €1.1583, down 0.4% on the day but up from an earlier two-week low of €1.1549.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Softens following ECB Comments
The Pound Euro (GBP/EUR) exchange rate fluctuated lower this morning as downbeat German data and hawkish European Central Bank (ECB) comments impacted the currency pairing.
At the time of writing, GBP/EUR is trading at around €1.1610, having bounced off a six-day low of €1.1598.
Euro (EUR) Buoyed by Hawkish ECB
After an initial blip, the Euro (EUR) has managed to zigzag higher against the Pound (GBP) this morning.
The opening of the European session saw the single currency stumble. German consumer confidence unexpectedly declined heading into July – the first deterioration in household morale in nine months.
However, the Euro then found its footing as hawkish ECB bets boosted the currency.
Speaking at the ECB’s Forum on Central Banking in Sintra, Portugal, the bank’s Vice-President Luis de Guindos said that another hike in July is baked in, adding ‘there is more ground to be covered on rates.’ These comments provided EUR with support, although de Guindos capped gains by saying that September’s decision was data dependent.
The comments come after ECB President Christine Lagarde struck a decidedly hawkish tone yesterday. Lagarde indicated that rates would need to move higher and stay there for longer, pouring cold water on expectations that the ECB would rapidly move to rate cuts after hitting its peak.
These hawkish bets are underpinning the common currency today.
Pound (GBP) Struggles amid UK Economic Woes
Meanwhile, the Pound stumbled out of the gate today amid ongoing concerns about the UK’s intensifying cost-of-living crisis.
UK inflation remains painfully high and the Bank of England (BoE) is continuing to aggressively raise interest rates, both of which are putting a huge squeeze on household budgets.
Economists have recently warned that the UK economy will fall into a recession at the end of the year due to further monetary tightening from the BoE.
Adding to these worries, headlines today report that UK water bills could surge by 40% by the end of the decade. Water companies are facing higher costs to fix the sewage crisis, which they intend to pass on to customers.
Furthermore, Thames Water – the water company serving the Greater London area in the UK – looks set to collapse. The government is drawing up contingency plans to shore up the failing utilities firm.
Today’s news adds to worries about the long-term economic outlook for the UK, which in turn is weighing on GBP.
Pound Euro Exchange Rate Forecast: Central Bank Speakers in the Spotlight
Looking ahead, the upcoming panel discussion at the ECB’s Sintra Forum is the focus for today. BoE Governor Andrew Bailey and the ECB’s Christine Lagarde are participating, alongside Federal Reserve Chair Jerome Powell.
If Lagarde echoes her hawkish comments from yesterday’s speeches then the Euro could catch fresh bids. Despite easing Eurozone inflation, the ECB chief remains committed to raising interest rates and holding them higher for longer.
Meanwhile, GBP investors may be looking to Governor Bailey for reassurance about the UK’s economic outlook.
After UK core inflation spiked last week and the BoE raised rates by 50bps, investors are fearful that the bank will hike the UK economy into a recession. If Bailey can assuage these worries then Sterling could find some support. However, if the BoE chief expresses concerns then we could see GBP drop.