The Euro has made marginal gains against the Pound during trading today, but may cede this strength in the future if the European Central Bank (ECB) seems set to dig its heels in over interest rates.
The next major ECB event will be the interest rate decision on March 9th, which will be followed by a press conference from ECB President Mario Draghi.
The ECB is expected to leave interest rates on hold at the current 0%, but any strong responses from Draghi to recent rises in Eurozone inflation are expected to have a significant impact on Euro demand.
The ECB’s current inflation rate target is ‘below 2%’ and the latest year-on-year result showed a rise to 1.8% in January.
Even this close to the target range, however, the ECB may still hold off on hiking the ECB interest rate in the near-term, given how momentous such a decision is.
Offering her take on the latest inflation rate figures has been ECB official Sabine Lautenschlaeger;
‘I’m very pleased to say, quite honestly, that we’re close to our [inflation] target of just under 2%. But what’s important for me is that it’s not a temporary, ephemeral outlier on the upside. So it’s really important to ascertain that there is a trend, that the inflation has really returned. So let’s wait a few months so that we can be sure’.
This attitude suggests that a 0% rate will be the norm for some time to come; if inflation continues to rise and the ECB sits on its hands, then the Euro could slide in demand due to a lack of central bank activity.
When it comes to Pound-influencing future developments, the House of Lords is expected to play an integral role.
An amendment to the Article 50 bill was recently defeated; its detail required the PM to keep the UK in the EU single market before triggering Article 50.
This has widely been seen as a victory for the Government and by contrast a setback on the road to getting the Article 50 bill amended favourably.
If peers continue to be defeated in their efforts to amend the Article 50 bill, then the Pound is unlikely to gain any ground against the Euro in the run-up to the expected trigger date in mid-to-late March.
Recent Interbank EUR GBP Exchange Rates
At the time of writing, the Euro Pound (EUR GBP) exchange rate was trending in the region of 0.85 and the Pound Euro (GBP EUR) exchange rate was trending in the region of 1.17.
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