Pound Euro (GBP/EUR) Exchange Rate Climbs as ECB Holds Interest Rates
(Updated 15:20, 26/10/23) The Pound Euro (GBP/EUR) exchange rate strengthened today as the European Central Bank (ECB) paused its interest rate hiking cycle.
As expected, the ECB opted to leave interest rates unchanged for the first time since it started its tightening cycle 15 months ago.
While the bank did leave the door open to further rate rises in the future, it once again indicated than it believes current rates are sufficiently restrictive to tame inflation.
ECB President Christine Lagarde also said she expects inflation to remain on a downward trajectory, and warned that the Eurozone economy ‘remains weak’.
This weighed on the Euro (EUR) through this afternoon’s trade, allowing the Pound (GBP) to climb against the single currency.
At the time of writing, the Pound Euro exchange rate is trading at around €1.4928, up 0.3% on the day.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Quiet as Investors Await ECB Meeting
The Pound Euro (GBP/EUR) exchange rate is wavering in a narrow range this morning as investors brace for the European Central Bank’s (ECB) latest interest rate decision.
At the time of writing, GBP/EUR is trading at around €1.1459, having wobbled sideways since the overnight session.
Pound (GBP) Dampened amid Risk-Off Mood
The Pound (GBP) is subdued today as a lack of economic data and a bearish market mood blunt the currency.
Due to Sterling’s increasingly risk-sensitive nature, investors are shunning it today as they remain anxious amid global economic and geopolitical developments.
The war between Israel and Hamas continues to worry markets, with Israeli troops launching a brief but sizeable ground raid into Gaza last night.
Tensions around the conflict have risen in recent days, with tempers in the region flaring and signs of disagreement emerging among Western countries over Israel’s military response to the atrocities committed by Hamas almost three weeks ago.
Fears that the conflict could draw in other regional powers are weighing on markets again today, with investors opting for safer currencies.
In addition, more companies have published their third-quarter results today. There seems to be a trend of falling profits and missed revenue expectations, which is adding to the risk-off mood.
Euro (EUR) Restrained as ECB Decision Looms
Meanwhile, the Euro (EUR) is unable to press the advantage against the Pound as EUR investors await the European Central Bank’s interest rate decision.
Investors are reluctant to reposition on EUR ahead of the ECB policy meeting. Although a rate hold is highly likely, there is uncertainty over the bank’s forward guidance.
A lack of Eurozone data in the run-up to the decision is also limiting the common currency’s movement. In addition, a stronger US Dollar (USD) is keeping a lid on the Euro, due to EUR’s negative trading relationship with USD.
Pound Euro Exchange Rate Forecast: Dovish ECB Decision to Weigh on EUR?
Looking ahead, the European Central Bank decision is in the spotlight today.
Markets have fully priced in a rate hold from the ECB, so the focus will be on the bank’s forward guidance.
At its previous meeting, the ECB signalled that it may be at the end of its rate hiking cycle, piling pressure on the Euro. Since then, however, the Israel-Hamas war has sparked fears that another global shock – such as wider conflict in the Middle East disrupting oil supplies – could push inflation higher again.
If the ECB reiterates its expectation that interest rates have peaked, we could see the Euro slump today. Conversely, any suggestion that the bank remains open to additional rate hikes in the future could lend EUR support.
In the meantime, the latest distributive trades survey from the Confederation of British Industry (CBI) could impact the Pound. Will another large decline in retail trade weigh on Sterling?