Euro Pound (EUR/GBP) Exchange Rate Trends Sideways after ECB Rate Hike
The Euro Pound (EUR/GBP) exchange rate is trading within a narrow range today following the European Central Bank’s (ECB) decision to hike interest rates by 0.75%.
The announcement of a support package to tackle soaring energy costs by UK Prime Minister Liz Truss may also have limited losses for the pair.
At time of writing the EUR/GBP exchange rate was at around £0.8675, virtually unchanged from this morning’s opening figures.
Euro (EUR) Climbs as ECB Hikes Rates by 0.75%
The Euro (EUR) is on the rise today following the ECB’s decision to raise interest rates by 0.75%. Whilst the move had largely been priced in by markets, the decision still helped to lend some support to the beleaguered single currency.
The rate hike represents the central bank’s most significant increase to interest rates since its inception. The ECB also signalled that it planned to raise interest rates further to tame soaring inflation in the Eurozone.
In a statement following the announcement, the ECB said:
‘The Governing Council took today’s decision, and expects to raise interest rates further, because inflation remains far too high and is likely to stay above target for an extended period.’
Significant gains for the single currency are likely being limited by the ongoing energy crisis across the trading bloc, however. The Nord Stream 1 gas pipeline has remained closed, limiting gas supplies to Europe.
Pound (GBP) Ticks Higher after Truss Announces Energy Support Plans
The Pound (GBP) is edging higher today. The upward momentum for Sterling came after UK PM Liz Truss’ announcement of an energy support package for UK households and businesses.
Truss announced that the UK government would be freezing energy bills at an average of £2500 a year. The freeze will take effect from 1 October and last for two years. Business and public sector-organisations are also set to be offered support for the next six months.
It was also announced that a £40bn fund would be set up to prevent volatility in the energy market in the future.
Some economists were upbeat about the announced measures, signalling that it could limit the risk of a recession for the UK.
Paul Dales of Capital Economics said:
‘It seems that the size and structure of the Prime Minister’s policy to freeze utility prices is broadly as expected and will reduce inflation and limit the size of the recession.’
Salomon Fiedler of German bank Berenberg was less optimistic, however:
‘The support package for households may cost around £100 billion (over 4% of UK GDP). Further measures for businesses may take the total price tag to around £150 billion. It seems likely that this spending will be mostly debt-financed.’
EUR/GBP Exchange Rate Forecast: Will Lagarde
Looking to the remainder of the week for the Euro (EUR), a speech from ECB President Christine Lagarde could drive further movement in the single currency if she reiterates the central bank’s stance.
Reaction in the markets to the ECB’s decision could also cause movement in EUR.
The rest of the week will see no other significant data releases for the Pound. The impact of Liz Truss’ appointment as the UK’s new PM may continue to prompt movement in the currency. Any further bets on interest rate hikes from the Bank of England could also see support for Sterling.
