Euro Pound Exchange Rate Rebounds on Hawkish ECB Minutes
The Euro Pound (EUR/GBP) exchange rate has rebounded from its initial losses today after the meeting accounts from the European Central Bank’s (ECB) March policy meeting were released.
At the time of writing, the EUR/GBP exchange rate is trading at around £0.8350, with minimum movement from today’s opening levels.
Euro (EUR) Edges Higher Following ECB Comments
The Euro (EUR) is trading marginally higher against the Pound (GBP) this afternoon following the publication of ECB’s monetary policy meeting accounts for last month.
With the accounts noting that Eurozone inflation is expected to remain above target through 2023, the appetite for faster policy normalisation appears to be growing amongst ECB policymakers.
EUR investors were particularly excited by the section which read ‘for all practical purposes, the three forward guidance conditions have been met’, as this bolstered expectations that the ECB could raise interest rates before the end of the year.
However, Russia’s invasion of Ukraine continues to drive volatility into EUR exchange rates as more evidence of atrocities committed by Russian troops come to light, dashing hopes of a diplomatic solution to the war being found in the near-term.
On the data front, retail sales across the Eurozone increased by 0.3% in February after a 0.2% increase in January.
Although this is providing the single currency with some support, the most recent figures failed to reach the market forecast of 0.6%, capping EUR’s gains.
Pound (GBP) Subdued Following Dovish BoE Remarks
The Pound (GBP) is slightly down against the Euro (EUR) in response to Huw Pill’s – a Bank of England (BoE) policymaker – dovish stance.
Today, Pill questioned BoE’s quantitate easing, stating:
‘Some of the papers to be presented here … give reason to question whether monetary policy is the appropriate tool to address these sovereign market functioning concerns.’
This comes amid the UK’s cost of living crisis as soaring inflation squeezes the income of working-class families.
Pill’s dovish speech has eased rate hike bets and is pressuring Sterling.
Meanwhile, the UK government has announced an energy strategy to ‘reduce our dependence on power sources exposed to volatile international prices we cannot control’.
According to Boris Johnson, the UK will increase energy production across solar, wind, hydrogen and nuclear sectors.
In doing so, it is hoped the UK energy crisis will be reined-in, providing some support to the UK economic recovery.
However, Kwasi Kwarteng, UK Secretary of State for Business, Energy and Industrial Strategy, believes the initiative will take up to five years to show real progress.
Euro Pound Forecast: Russia-Ukraine War Takes Centre Stage
Looking ahead, Russia’s invasion of Ukraine is likely to continue driving volatility in both EUR and GBP exchange rates.
Should peace talks remain at an impasse, it is likely to weigh on EUR/GBP.
Tomorrow, a speech from ECB policymaker, Fabio Panetta, may influence the single currency. Will he offer any additional context to March’s meeting accounts?
Meanwhile, an absence of UK economic data throughout the rest of this week’s session, could leave the Pound exposed to market sentiment and external factors.