Unsurprising ECB Meeting Fails to Boost Euro Pound (EUR/GBP) Exchange Rate
Few surprises were offered by the European Central Bank’s (ECB) April policy decision, with the latest policy statement seeing little change from the previous meeting and leaving the Euro to Pound (EUR/GBP) exchange rate on a softer footing.
With the ECB looking set to maintain its slightly dovish policy bias for some time yet the positive impact on the Euro (EUR) was somewhat limited.
While ECB President Mario Draghi proved a little more optimistic on the subject of the Eurozone economy’s growth outlook this was not enough to boost the EUR/GBP exchange rate.
Euro Pound (EUR/GBP) Exchange Rate Recovers Ground Ahead of ECB Announcement
With anticipation mounting ahead of the latest European Central Bank (ECB) policy meeting the Euro to Pound (EUR/GBP) exchange rate was able to push higher on Thursday morning.
While markets do not expect to see any shift in the central bank’s policy outlook today this did not prevent Euro (EUR) exchange rates from making some modest gains ahead of the announcement.
In part this was thanks to an easing in the strength of the US Dollar (USD), which had weighed heavily on EUR exchange rates since the start of the week.
Although May’s German GfK consumer confidence index showed a modest dip on the month, this failed to provoke any fresh Euro bearishness.
EUR/GBP Exchange Rate to Find Support on Weaker First Quarter UK GDP
The latest signs of softness in the UK housing market offered additional support to the Euro to Pound (EUR/GBP) exchange rate, meanwhile.
March’s BBA loans for house purchase figure showed a dip on the month, highlighting a lower level of mortgage approvals at the end of the first quarter.
This did not encourage any particular confidence in the Pound (GBP), with markets still in doubt over the strength of the domestic economic outlook.
Further weakness is forecast for GBP exchange rates on the back of tomorrow’s revised first quarter gross domestic product data.
With the quarterly growth figures expected to show a downward revision from 0.4% to 0.3%, this would indicate the economy has lost additional momentum since the start of the year, making the Pound look vulnerable.
While this weakness is largely attributable to the impact of adverse weather conditions in February and March, though, the EUR/GBP exchange rate could still push higher in response to a weaker figure.
Dovish ECB Policy Meeting Forecast to Limit Euro Pound (EUR/GBP) Exchange Rate Upside
A dovish performance from ECB President Mario Draghi could see the Euro to Pound (EUR/GBP) exchange rate slump once again.
Investors are keen to get a fresh gauge on the central bank’s outlook and the likely timing of its exit from the long-running quantitative easing programme.
However, as analysts at Lloyds Bank noted:
‘We expect that it is too early for the ECB’s forward guidance to be adjusted again today, but markets will be watching Mr Draghi’s comments very closely. We anticipate the President will be cautious about signalling less stimulus at the present time given that demand in the economy looks to have slowed in Q1 and underlying inflation remains relatively subdued.’
If policymakers express any concerns over the relative strength of the Euro (EUR) this may put further downside pressure on the EUR/GBP exchange rate.
Any signs of greater hawkishness, on the other hand, could encourage investors to pile back into the single currency this afternoon.
Even though the prospect of an interest rate hike remains distant any shift away from the central bank’s dovish policy stance would help to drive the Euro to Pound (EUR/GBP) exchange rate higher.