Pound euro (GBP/EUR) exchange rate retraces steps following ECB minutes
(Updated 14:15, 10/10/24) The pound euro (GBP/EUR) exchange rate trimmed its earlier gains this afternoon following the European Central Bank’s (ECB) September meeting minutes.
The accounts from last month’s interest rate decision showed that policymakers were wary of declaring victory over inflation, with members believing a ‘gradual approach’ to lowering interest rates would be appropriate.
Although some policymakers have since voiced support for more rate cuts, the minutes showed that the bank is cautious of cutting too quickly. This lent the euro (EUR) some modest support, although investors still expect another cut this month.
Meanwhile, the pound (GBP) lost its shine amid lingering concerns over the UK Autumn Budget. News that Chancellor Rachel Reeves is reportedly changing the government’s fiscal rules to allow for more borrowing has cheered GBP investors recently. However there are fears that, if Reeves is not careful, over-borrowing could lead to a run on government bonds. This has kept a lid on GBP today.
At the time of writing, GBP/EUR is trading at €1.1944, down from an earlier high of €1.1969.
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Pound euro (GBP/EUR) exchange rate firms as ECB minutes loom
The pound euro (GBP/EUR) exchange rate is continuing its recent recovery today, as European Central Bank (ECB) interest rate cut bets keep the single currency under pressure.
At the time of writing, GBP/EUR is trading at €1.1955. While this is only marginally higher on the day, the pairing has recouped its losses from earlier in the week.
Euro (EUR) muted on ECB rate speculation
The euro (EUR) is subdued this morning as ECB rate cut bets continue to weigh on the common currency.
Earlier in the week, ECB policymaker Mārtiņš Kazāks – typically seen as one of the more hawkish voices on the bank’s Governing Council – suggested that further rate cuts ‘are necessary’. Meanwhile, his colleague François Villeroy de Galhau said that another cut this month is ‘very likely’.
Markets have increasingly been pricing in two consecutive rate cuts in October and December, as Eurozone inflation moderates and the bloc’s economy starts to struggle.
With the ECB September meeting minutes due out later today, rate cut bets are dampening EUR’s appeal.
Pound (GBP) buoyed by budget hopes
Meanwhile, the pound (GBP) is attracting support this morning amid hopes that the UK Autumn Budget will not be as ‘painful’ as feared.
Investors had been anxious that the new Labour government would announce tax hikes and spending cuts in its first budget later this month. However, recent reports that Chancellor Rachel Reeves has decided to change the government’s fiscal rules have inspired some optimism.
If Reeves has indeed changed the fiscal rules, she could have the headroom to borrow billions more pounds for spending and investment.
Pound euro exchange rate forecast: UK GDP and ECB minutes to see GBP/EUR climb further?
Looking ahead, the ECB meeting minutes this afternoon could see GBP/EUR extend its gains. If the accounts of last month’s policy meeting reinforce expectations for two more back-to-back rate cuts by the end of the year, the euro could face selling pressure.
Attention then turns to tomorrow’s UK GDP figures – the only notable British release this week. Sterling could start Friday’s session strong if the UK economy returned to growth in August, after stalling in June and July.
In the meantime, we may see risk appetite impact the currency pairing. Could a gloomy mood start to weigh on the pound euro exchange rate?