Euro Pound (EUR/GBP) Exchange Rate Trends Sideways after ECB Interest Rate Decision
The Euro Pound (EUR/GBP) exchange rate is trading within a narrow range today. Dovish signs from the European Central Bank (ECB) following its interest rate decision may be weighing on the pairing.
On the other hand, bets on a pause in policy tightening from the Bank of England (BoE) may be underpinning EUR/GBP.
At time of writing the EUR/GBP exchange rate was at around £0.8763, virtually unchanged from this morning’s opening figures.
Euro (EUR) Trades Narrowly as ECB President Hints at Dovish Pivot
The Euro (EUR) is sitting close to its starting position today after some volatile movements. Dovish rhetoric from ECB President Christine Lagarde may be capping any gains for EUR.
The ECB hiked interest rates by 50bps despite signs of continued instability in the European banking sector.
In the press conference following the decision, ECB President Christine Lagarde signalled that any future interest rate decisions would be data-driven. These cautious signals may be keeping pressure on the Euro.
Lagarde was clear to restate the ECB’s intent to fight inflation however, which may be underpinning the single currency.
Speaking on the ECB’s decision, ING’s global head of macro Carsten Brzeski said:
‘Now that interest rates are in restrictive territory, every additional rate hike increases the risk of breaking something. As a result, we expect the ECB to turn more dovish today and in the coming weeks, probably hinting at a slowdown in the pace and size of any further rate hikes.’
Pound (GBP) Falls as Banking Sector Instability Prompt BoE Bet Pullback
The Pound (GBP) is slipping today. A continued pullback in Bank of England (BoE) rate hike bets is likely pulling Sterling lower.
Markets are now pricing in a 50% chance that the BoE will pause its rate-hiking cycle. The recent instability in the global banking sector has only added to expectations of a rate hike slowdown.
James Smith, developed markets economist, said:
‘The question of whether the BoE will follow through with a 25bp hike next week depends much more heavily on the situation in the banking sector. While the feedthrough to the UK is still unclear, beyond global moves in asset prices, the BoE has made it clear that the bar to pausing rate hikes is now fairly low.’
The unveiling of the UK’s spring budget on Wednesday may also be weighing on GBP today. Whilst many of the measures unveiled were hailed as positive, analysts were sceptical of the long-term benefits.
EUR/GBP Exchange Rate Forecast: Will Final Inflation Reading Dampen ECB Bets?
Looking to the rest of the week for the Euro, the final reading of February’s Eurozone inflation figures could dent confidence in EUR on Friday. Inflation is forecast to ease to 8.5% which may reduce expectations of further rate hikes from the ECB.
On the other hand, core inflation is forecast to rise. With Lagarde placing particular emphasis on underlying inflationary pressures, a rise in core inflation could boost the Euro.
Further signs of instability in the European banking market could also weigh on the Euro over the remainder of the week. Markets will be hoping that the £44bn offered to Credit Suisse by the Swiss National Bank will stabilise the sector.
The Pound will see no other data releases this week which could leave the currency vulnerable to domestic pressures. Further industrial action in the UK’s public and private sector could weigh on Sterling.
Any shifts in BoE rate hike expectations may also prompt movement in the Pound this week. An increase in bets on policy tightening pause could pull GBP lower.