Euro Pound Exchange Rate Falls as ECB Looks to Tame Rate Hike Speculation
The Euro Pound (EUR/GBP) exchange rate is edging lower today as European Central Bank (ECB) President, Christine Lagarde seeks to dampen rate hike bets.
At the time of writing, the EUR/GBP exchange rate is trading at around £0.8430, down approximately by 0.2% from today’s opening levels.
Euro (EUR) Drops as ECB Reins in Rate Hike Bets
The Euro (EUR) is stumbling against the Pound (GBP) as the ECB’s Lagarde, dulls rate hike bets.
Last week, Lagarde ‘adopted a dramatically more hawkish tone’, according to Andrew Kenningham, chief Europe economist, at Capital Economics.
This caused speculation the ECB could deliver a rate hike by the end of 2022, and spurred EUR exchange rates sharply higher last week.
However, Lagarde struck a more cautious outlook on monetary policy and the possibility of future rate hikes in a testimony in front of the EU parliament earlier this week.
Lagarde said:
‘There are no signals that inflation will be persistently and significantly above our target over the medium term, which would require measurable tightening.
‘This increases the likelihood that the current price pressures will subside before becoming entrenched, enabling us to deliver on our 2% target over the medium term.
‘Any adjustment to our policy will be gradual.’
This has taken some of the wind out of the Euro’s sails as EUR investors reprice their ECB rate hike bets.
Pound (GBP) Climbs Despite UK Political Uncertainty
The Pound (GBP) is firming against the Euro (EUR) in spite of Boris Johnson coming under additional pressure this week to resign.
Johnson is under further scrutiny following his remarks last week which implied that the Labour leader, Sir Keir Starmer, had ‘[failed] to prosecute Jimmy Savile’.
These remarks led to Starmer being targeted by protestors on Monday evening who shouted abusive comments at him, such as allegations of ‘protecting paedophiles’.
Although Johnson has since clarified his comments, he is refusing to apologise, with a No.10 representative stating that ‘he has got other stuff to get on with today.’
Johnson has received some support from loyal MP’s, with Chris Philip, the Technology Minister, believing that the Prime Minister is ‘certainly not to blame’ for the situation that Starmer faced.
Northern Ireland Secretary Brandon Lewis, also offered his support to Johnson, claiming that his comments were ‘fair’.
On the other hand, many MP’s – both from the opposition and the Conservative party – are calling for Johnson to resign.
Sadiq Khan, the Mayor of London, said:
‘This is what happens when fake news is amplified and given credibility by people who should know better.’
This is limiting the Pound’s potential against a weak Euro during today’s session.
Euro Pound Forecast: Will German Trade Data Cause EUR to Stumble?
Looking ahead, an influx of German data may cause pressure on the Euro Pound exchange rate.
Tomorrow, EUR exchange rates may be weighed on by German trade data which is forecast to print lower than previous figures. December’s balance of trade is expected to decrease, which – if prints true – will show a decline in trade during the festive month.
Similarly, imports and exports are also expected to decline from 3.3% and 1.7% to -1.5% and -0.2%, respectively.
Later in the week, Germany’s final reading of inflation in January inflation is expected to slip marginally from 0.5% to 0.4% which may further weigh on EUR.
On the other hand, the Pound be impacted by speeches from Bank of England’s (BoE) Governor, Andrew Bailey, and policymaker, Huw Pill, should they hint at the bank’s future monetary policy.
