Euro Pound (EUR/GBP) Zigzags as Markets Brace for Rate Hikes
The Euro Pound (EUR/GBP) exchange rate is struggling for a clear direction this morning as investors await both the ECB and BoE interest rate decisions.
At time of writing, the EUR/GBP exchange rate is around £0.8609, relatively unchanged from this morning’s opening levels.
Euro (EUR) Cautious ahead of ECB Rate Decision
The Euro (EUR) is experiencing mixed success this morning as the market shifts its focus to the European Central Bank (ECB) rate decision this afternoon. A downbeat market mood, combined with its negative correlation with the US Dollar, could be limiting any gains for the Euro.
An expected 50bps rate hike at midday will coincide with the Bank of England’s (BoE) interest rate decision. The ECB followed the previous interest rate decision with a dovish statement. However, recent comments point to the central bank not intending to slow its rate-hiking cycle.
Elsewhere, with the Federal Reserve raising interest rates by 50bps as expected, the US Dollar enjoyed tailwinds which weighed on the Euro. With the Fed continuing their rate hikes, global market sentiment continues to be downbeat.
Pound (GBP) Weighed Down by Recession Fears
Meanwhile, the Pound (GBP) is also struggling for demand against its stronger currencies as persistent economic headwinds keep a firm lid on Sterling.
Expectations of a 50bps interest rate hike are all but priced in. However, the relative weakness of the UK economy could be weigh heavy. Concerns of the UK entering a long recession are worrying investors. Despite inflation softening, it remains far above the central bank’s target rate of 2%.
Chancellor Jeremy Hunt has welcomed the central bank’s tough stance on inflation and lauds their fight on bringing inflation down. Hunt said:
‘(Inflation is) the number one enemy that makes everyone poorer, getting inflation down so people’s wages go further is my top priority.’
Euro Pound Exchange Rate Forecast: Stronger Eurozone Economy to Weigh on Sterling?
Looking ahead, the Euro Pound exchange rate could see movement skewed to the former. Both central banks are set to raise rates by 50bps. The European economy appears to be in a stronger position than the UK as the BoE is set with the tougher task. The tricky balancing act between raising rates and risk stunting economic growth further, the BoE could be set for further turbulence. With both banks set to hike rates by 50bps, a deviation on either side could inspire movement.
Meanwhile, tomorrow sees the release of the latest MoM retail sales in the UK. Expected downbeat retail sales could weigh further on the Pound.
