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Euro to Pound Sterling Exchange Rate Knocked by Surprisingly Dovish European Central Bank

ECB President Mario Draghi

European Central Bank (ECB) Decision Limits Euro to Pound Exchange Rate Strength

Updated 15:37 GMT 7/3/2019:

As was widely expected, the European Central Bank (ECB) left monetary policy frozen during its March policy decision today.

However, bearish analyst predicts were also fairly accurate as the European Central Bank took a more dovish tone on Eurozone monetary policy.

The bank indicated it would not hike Eurozone interest rates at all this year, and also announced plans for further stimulus measures in attempt to help prevent the Eurozone economic slowdown from becoming a downturn.

As a result of the ECB’s more dovish stance, the Pound (GBP) was able to avoid notable losses against a weaker Euro (EUR).

[Published 09:40 GMT 7/3/2019]

Euro to Pound Exchange Rate Edges Away from Lows Ahead of ECB Policy Announcement

Despite a perceived improvement in Eurozone data, as well as fresh hopes that the Eurozone economic outlook had taken a positive turn, the Euro to Pound Sterling (EUR/GBP) exchange rate has seen poor performance and only rebounded slightly today.

Since opening this week at the level of 0.8607, EUR/GBP has trended largely with a downside bias as Eurozone economic jitters weigh on the Euro (EUR) and the Pound (GBP) continues to benefit from hopes that a no-deal Brexit will be avoided.

Despite wide fluctuations for most of the week so far, EUR/GBP was trending close to the level of 0.8593 today as the currently firmed a little closer to the week’s opening levels ahead of the European Central Bank’s (ECB) March policy decision.

The ECB is expected to leave monetary policy frozen today, but markets are anxious that the bank could indicate that there will be no Eurozone interest rate hike until 2020 at the earliest.

Euro (EUR) Exchange Rates Firm as Investors Await European Central Bank (ECB) News

Demand for the Euro has been limited this week versus the Pound, but this week’s Eurozone ecostats have helped the shared currency to avoid sliding back to its worst levels despite European Central Bank (ECB) jitters.

Tuesday’s Eurozone services and composite PMIs largely beat forecasts, as did the Eurozone’s January retail sales stats, as well as Wednesday’s German construction figures.

Overall though, Eurozone economic uncertainty has persisted and limited market demand for the Euro this week so far. Speculation that the ECB could take a more dovish tone on Eurozone monetary policy in today’s meeting also weighed.

Due to Eurozone data indicating that the recent Eurozone economic slowdown had been surprisingly sharp, analysts speculate that the ECB will take a more dovish tone on Eurozone monetary policy.

Speculation has risen that the bank will hint at no Eurozone interest rate hikes until next year at the earliest, or that it may introduce a new bout of fresh economic stimulus such as cheap loans.

This has left investors hesitant to move too much on EUR/GBP ahead of the ECB decision.

Pound (GBP) Exchange Rates Mixed on Doubts for Success of Brexit Deal

Sterling has been driven mostly by Brexit speculation this week, but the currency’s strong rally from last week has essentially run out of steam on fresh uncertainty regarding how the process will unfold.

While investors are still hopeful that UK MPs will vote to avoid a no-deal Brexit during next week’s Parliament vote, there is doubt in markets that the government’s Brexit plan has gained enough support to pass.

A lack of perceived progress in fresh UK-EU negotiations has meant that the UK government has not been able to secure assurances needed to bolster support for the deal within the ruling Conservative Party.

The government still intends to hold its meaningful vote next week, despite a lack of progress in talks. This has led to uncertainty, as even if the Brexit process is formally delayed it leaves the ultimate outcome of the Brexit process unclear.

Euro to Pound (EUR/GBP) Exchange Rate Investors Anticipate ECB and Brexit News

With the Brexit process seemingly in limbo until next week’s meaningful Parliament Brexit vote takes places, the Euro to Pound (EUR/GBP) exchange rate is more likely to react to Eurozone news towards the end of the week.

Today’s biggest focus will of course be on upcoming Eurozone growth data, as well as the European Central Bank’s (ECB) anticipated monetary policy decision.

The ECB is expected to leave monetary policy frozen – it’s the tone the bank takes on the Eurozone economy and what’s next for monetary policy that will drive Euro movement towards the end of the week.

If the bank takes a more dovish stance, such as delaying interest rate hikes beyond 2019 or hinting that more economic stimulus could be on the way, the Euro could tumble.

This could make it easier for the Pound to push the Euro to Pound (EUR/GBP) exchange rate back to its worst levels in over a year.