Pound euro (GBP/EUR) exchange rate static as markets await ECB decision
The pound euro (GBP/EUR) exchange rate is wavering this morning, as attention shifts to tomorrow’s interest rate decision from the European Central Bank (ECB).
At the time of writing, GBP/EUR is trading at around €1.1686, showing little movement from the morning’s opening rates.
Euro (EUR) flat as markets await ECB rate decision
The euro (EUR) is trading in a narrow range this morning, as investors look ahead to the European Central Bank’s interest rate decision.
Tomorrow, the central bank is due to unveil its decision, and is widely expected to keep interest rates unchanged. The stage has been built by markets for the ECB to begin unwinding its monetary policy in June.
This comes on the back of yesterday’s quarterly survey of lenders from the ECB, which found that demand for loans from firms was declining.
Investors are pondering the extent of interest rate cuts, with some eyeing up to four rate cuts this year. This is applying pressure to the euro, amid speculation of a divergence between the ECB and other central banks.
Tomasz Wieladek, an economist at T Rowe Price, commented:
‘This is a clear indicator that monetary policy remains too tight in the euro area. The ECB will take this into account when deciding to ease policy in June. I believe that the survey data yesterday and the implications for investment make four to five sequential rate cuts in 2024 much more likely.’
Elsewhere, a lack of macroeconomic data releases and risk-on trade is further serving to undermine the common currency.
Pound (GBP) muted amid lack of data
The pound (GBP) is continuing its recent trend of muted trade this morning, amid a lack of impactful data releases.
However, despite the pound being an increasingly risk-sensitive currency, it appears unable to capitalise on today’s bullish trade.
This could be because investors are opting to deliberate over the Bank of England’s (BoE) path forward. While the BoE is expected to cut interest rates in June, the next phase of policy loosening remains unclear.
Inflationary pressures have continued to ease in the UK, which may prompt the central bank to cut rates up to three times this year.
Pound euro exchange rate forecast: UK GDP growth in focus
Looking ahead for the pound, the core catalyst of movement is likely to be the latest GDP data, due to print on Friday.
In February, economists are expecting the UK’s economy to have grown by 0.1% on a monthly basis. While this marks a slowdown from January’s 0.2% reading, it would indicate the second consecutive month of growth.
As the UK is currently attempting to emerge from a technical recession, this reading could strengthen Sterling. However, the potential slowdown in activity may trim its gains somewhat.
For the euro, meanwhile, the fallout from the ECB’s interest rate decision is likely to continue shaping the common currency.
Owing to a lack of other data releases, investors may remain focused on the ECB’s forward guidance, specifically on rate cut timing.
Additionally, risk appetite is likely to play a role in shaping the pairing. Owing to the euro’s safer stature, souring trade could weaken the GBP/EUR exchange rate.