Pound Euro Exchange Rate Jumps as ECB Signals End to Interest Rate Rises

Pound Euro (GBP/EUR) Exchange Rate Rallies following Dovish ECB Hike

(Updated 14:40, 14/09/23) The Pound Euro (GBP/EUR) exchange rate leapt higher this afternoon after the European Central Ban (ECB) signalled that interest rates may have peaked.

The ECB concluded this month’s policy decision by raising interest rates by 25bps. However, the bank also indicated that this may be the last hike in its tightening cycle.

In a press release accompanying the decision, the ECB said:

‘Based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.’

This suggests that policymakers believe interest rates have peaked, decreasing the likelihood of any further rate rises.

In addition, the ECB updated its forecasts for both growth and inflation, which made for gloomy reading. The bank expects the Eurozone economy to grow at a slower rate than previously predicted, while inflation will remain higher for longer.

At the subsequent press conference, ECB President Christine Lagarde revealed that some policymakers would have preferred to pause at today’s decision, with this dovish news adding to EUR’s woes. Lagarde did try to reassure reporters that the ECB would be open to further tightening if needed, but this failed to stem the Euro’s (EUR) losses.

At the time of writing, GBP/EUR is trading at €1.1649, up more than 0.3% from an earlier low.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Wobbles Ahead of ECB’s Pivotal Policy Decision

The Pound Euro (GBP/EUR) exchange rate is fluctuating mostly sideways today as uncertainty around the impending interest rate decision from the European Central Bank (ECB) mutes the currency pairing.

At the time of writing, the GBP/EUR exchange rate is trading at around €1.1627, having wavered in a narrow range so far this morning.

Euro (EUR) Subdued as ECB Decision Looms

The Euro (EUR) is muted today as markets await the ECB interest rate decision.

Analysts are split over whether the bank will hike or hold rates, and investors are unwilling to place aggressive bets amid this uncertainty, leaving the single currency to trade in a narrow range ahead of the decision.

Furthermore, a lack of Eurozone data this morning and a mixed market mood are also limiting the Euro’s movement.

Pound (GBP) Remains Defensive following Yesterday’s GDP

Meanwhile, the Pound (GBP) is also quiet this morning, with the UK currency trading flat against most of its peers amid a lack of British economic data.

Yesterday’s GDP data continues to keep the Pound on the defensive, however, preventing it from gaining ground against a muted Euro.

July’s contraction in growth added to a recent slew of data releases pointing to a struggling UK economy, raising recession fears and dampening Bank of England (BoE) interest rate hike bets.

These factors continue to exert some pressure on the Pound today.

Pound Euro Exchange Rate Forecast: ECB Decision to Drive Volatility

Looking ahead, the ECB interest rate decision is in the spotlight today, bringing a high likelihood of volatility in EUR exchange rates.

Markets are pricing in slightly higher odds of a pause from the European Central Bank, which could see the Euro strengthen if the bank surprises with a rate hike. If the ECB does leave rates on hold, however, EUR exchange rates could slip.

Another burning question on investors’ minds is whether the central bank is at the end of its hiking cycle. Any signs that this is the case could see the single currency slump, while the possibility of another rate rise in the future could support the Euro.

With so many variables and so much uncertainty, EUR may face choppy trade as markets react to today’s events. Half an hour after the rate decision, ECB President Christine Lagarde will field questions in the post-decision press conference. Her comments could drive further volatility.

Samuel Birnie

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