Pound Euro (GBP/EUR) exchange rate hits three-week high post ECB decision
Article updated 13:52, 7/3/2024:
The Pound Euro (GBP/EUR) exchange rate is rising this afternoon, following the European Central Bank’s (ECB) latest interest rate decision.
While the ECB kept rates unchanged as expected, and remained coy around rate cuts, the central bank revised its inflation forecasts lower.
The ECB’s accompanying statement outlined that:
‘In particular, ECB’s interest rate decisions will be based on its assessment of inflation outlook in light of incoming economic and financial data, dynamics of underlying inflation and strength of monetary policy transmission’
Because of this, markets are interpreting it as signal that the ECB will soon begin to discuss looser policy.
At the time of writing, GBP/EUR is trading at around €1.1726, an increase of just under 0.4% from today’s opening levels.
Original article continues below:
Pound Euro (GBP/EUR) exchange rate flat ahead of ECB interest rate decision
The Pound Euro (GBP/EUR) exchange rate is narrowing today, as investors await the European Central Bank’s (ECB) interest rate decision.
At the time of writing, GBP/EUR is trading at around €1.1704, showing little movement from the morning’s opening levels.
Euro (EUR) quiet ahead of ECB decision
The Euro (EUR) is trading in a muted capacity this morning, as investors await the European Central Bank’s latest interest rate decision.
This afternoon, the ECB is widely expected to keep interest rates unchanged at 4.5%. Because of this, all eyes will be on any accompanying forward guidance from the central bank.
While inflation is seeming to cool consistently and the Eurozone economy is weakened, services price pressures remain.
With this in mind, the timing of interest rate cuts is expected to be the key question. If the ECB begins to explore the possibility of policy loosening, the Euro could tank later in the session.
The ECB, then, is likely to keep any communication change to a very subtle level, so as to not collapse EUR exchange rates. Analysts still anticipate June to be the beginning of its rate cutting cycle.
Carsten Brzeski, Global Head of Macro at ING, commented:
‘With recent macro data, the pressure on the ECB to cut rates earlier has gone up. We still think that the ECB has good reasons to resist that pressure and to push back expectations. Nevertheless, the subtle changes in the official communication should continue, sending more precise signals for a June rate cut.’
Pound (GBP) wavers amid tepid Spring Budget analysis
The Pound (GBP) is trading in a limited capacity this morning, amid continued analysis of the Spring Budget.
Unveiled yesterday, UK Chancellor Jeremy Hunt produced a series of measures aimed to increase growth in the economy. However, analysis suggests that the introduction of a 2% cut to national insurance was not enough to outweigh previously introduced tax rises.
Because of this, the Office for Budget Responsibility (OBR) found that the budget did little to brighten the UK’s economic growth prospects.
The OBR stated that:
‘Higher and rising levels of inactivity offset its impact on the overall size of the workforce, leaving our forecast for the level of GDP in five years virtually unchanged from the autumn, and the level of GDP per person slightly lower.’
In combination with a lack of fresh data this morning, the tepid analysis is serving to keep GBP exchange rates softened.
Pound Euro exchange rate forecast: German industrial production increase to lift EUR?
Looking ahead for the Euro, the latest German industrial production data is due to print tomorrow.
In January, economists are forecasting that production increased by 0.6%, which may underpin EUR over the session.
However, production may have weakened during January, and the reading could slump in line with today’s factory orders release.
Elsewhere, continued analysis of the ECB’s latest interest rate decision may drive volatility in the common currency.
For the Pound, meanwhile, data releases are thin on the ground through to the end of the week. Because of this, Sterling may struggle to find a clear direction, and could be left exposed to shifts in risk appetite.
As a more risk-sensitive currency, a shift towards bullish trade could strengthen GBP above the safer Euro.