EUR/GBP Exchange Rate Plummets as ECB Pledges to Leave Rates on Hold Well Into 2019
The Euro Pound (EUR/GBP) exchange rate is licking its wounds this morning, after the pairing face planted yesterday in the wake of the European Central Bank’s (ECB) latest rate decision.
At the time of writing, the EUR/GBP exchange rate is currently up by around 0.2%, but is still nearly 0.7% down from Thursday’s best levels.
Euro (EUR) Exchange Rate Nosedives on ECB Rate Pledge
The Euro Pound (EUR/GBP) exchange rate was sent spiralling lower on Thursday as the single currency crashed following the European Central Bank’s (ECB) latest forward guidance on interest rates.
This was partly driven by the ECB revising its economic forecast, but was mainly attributed to ECB President, Mario Draghi’s statement that the bank was committed to leave interest rates on hold until at least summer 2019.
This scuppered any hope of a rate hike early next year and leaves the ECB well behind its counterparts around the world in normalising its monetary policy, dragging on Euro (EUR) sentiment.
Mike Ingram, chief market strategist at WHIreland said:
‘The ECB has (conditionally) pre-committed to keeping interest rates at their current, extraordinarily low levels until at least the summer of 2019 and in any event ‘as long as necessary’.
This sort of language was not expected from the ECB until the end of the 2018 and was the biggest dovish surprise for markets.’
The ECB’s June policy meeting also saw the bank announce it would be wrapping up its crisis-era quantitative easing by the end of 2018.
The bank stated that it would be reducing its monthly bond purchases starting in October, with the aim of completely exiting its stimulus programme in December.
This was widely expected to have a positive impact on the Euro, but was largely overshadowed by Draghi’s pledge to leaves rates on hold.
Pound Sterling (GBP) Exchange Rate Gives up Gains on Retail Doubts
At the same time the Pound (GBP) is struggling to cling to its gains this morning as investors continue to reflect on yesterday’s stronger-than-expected UK retail sales.
While sales growth was able to hold well about market forecasts last month’s, analysts have become increasingly pessimistic on the likelihood of this strength persisting through the second half of 2018.
Analysts pointed to temporary factors such as the royal wedding and sunshine in May as an indicator that sales could trend lower again over the coming months.
Samuel Tombs, of PantheonMacro, said:
‘The jump in retail sales in May has all the hallmarks of a weather-related blip, rather than a sustainable pick-up in spending.’
EUR/GBP Exchange Rate Forecast: Markets look to BoE for any Signals of an August Hike
Looking ahead to next week’s session, it will be the Bank of England’s (BoE) turn to drive movement in the EUR/GBP exchange rate.
While no policy changes are expected from the BoE in the bank’s June policy meeting, markets will be paying close attention to the bank’s forward guidance.
Economists are still split on whether the BoE will commit to raising interest rates in August, and this month’s meeting could help to tip the odds in favour of the Pound if policymakers strike a more optimistic tone.
Meanwhile the focus for EUR investors next week is likely to be on the Eurozone’s latest PMI figures, with the Euro poised to tumble if they reveal that the bloc’s private sector continued to slow this month.