Pound Euro Exchange Rate Edges Higher Following ECB Interest Rate Decision
The Pound Euro (GBP/EUR) exchange rate is trending higher this afternoon after the European Central Bank (ECB) delivered its latest interest rate decision. However, the Pound’s (GBP) gains are capped by UK political anxiety.
At the time of writing, the GBP/EUR exchange rate is trading at approximately €1.1732, up roughly 0.3% from today’s opening levels.
Euro (EUR) Edges Lower After ECB Confirms Future Rate Hike
The Euro (EUR) is slipping against the Pound today following the ECB’s latest interest rate decision.
As expected the ECB left interest rates on hold at 0% this month as the Governing Council intends to bring bond purchases to an end.
The Euro is subdued this afternoon after the bank signalled it will only raise rates by 25 basis points next month, rather than the 50bps hike that some EUR investors had hoped for.
The ECB also revised its growth forecast for 2022 and 2023 down from March’s projections, further unnerving EUR investors.
However, the Euro is receiving some support as the bank confirmed plans to raise interest rates at the upcoming policy meetings in July and September.
The hike comes as the ECB seeks to ease Eurozone inflation, which jumped to 8.1% in April significantly above the ECB’s target of 2%.
In a statement, the ECB said:
‘Beyond September, based on its current assessment, the Governing Council anticipates that a gradual but sustained path of further increases in interest rates will be appropriate.
‘In line with the Governing Council’s commitment to its 2% medium-term target, the pace at which the Governing Council adjusts its monetary policy will depend on the incoming data and how it assesses inflation to develop in the medium term.’
Pound (GBP) Rises Despite UK Political Anxiety
Meanwhile, the Pound is climbing on the Euro’s weakness today, though UK political turbulence continues to limit any meaningful gains.
On Monday, Prime Minister Boris Johnson narrowly won the vote of no confidence. Although this was expected to bolster GBP exchange rates as it would protect him from another vote for a year, rebel Tory MP’s are reportedly looking to amend the 1922 committee rules to permit another vote later in the year.
Moreover, GBP investors are worried Johnson – in an effort to win back support of his party – will adopt a more hardline attitude towards Brexit: the UK government is looking to unilaterally amend the Northern Ireland protocol.
This may drive volatility in the UK-EU relationship and trigger a trade war.
In addition, Sterling is being dented after the Organisation for Economic Co-operation and Development (OCED) and the British Chambers of Commerce (BCC) delivered a bleak economic forecast.
Reports suggest the British economy will ‘grind to a halt’ before stalling next year.
Pound Euro Forecast: Will Lagarde’s Speech Boost EUR Exchange Rates?
Looking ahead, the Pound Euro exchange rate may be impacted by a speech from ECB President Christine Lagarde tomorrow.
Will a hawkish tone buoy the single currency’s appeal?
Into next week, the Pound may be bolstered by the UK’s latest GDP growth rate.
In April, UK GDP is expected to expand by 0.1%, a promising improvement from the previous contraction of 0.1%.
In addition, both GBP and EUR are likely to remain sensitive to Brexit developments.