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Pound Euro Exchange Rate Subdued as Investors Await Central Bank Meetings

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Pound Euro (GBP/EUR) Exchange Rate Muted ahead of Central Bank Meetings

The Pound Euro (GBP/EUR) exchange rate traded within a narrow range today. Domestic political developments in the UK are likely to have limited the Pound’s upward movement, whilst an expected dovish stance from the European Central Bank (ECB) on Thursday may be limited trading on the Euro.

Pound (GBP) Falters as PM Johnson Faces Renewed Calls for Resignation

The Pound (GBP) has struggled against many of its riskier competitors today whilst also benefitting from a lack of demand for the US Dollar (USD). Sterling is likely facing significant domestic headwinds today as Prime Minister Boris Johnson continues to battle calls for his resignation following the publication of the report into illegal gatherings at 10 Downing Street.

The report, published in a redacted form owing to an ongoing police investigation, highlighted 16 incidents of gatherings that breached Covid-19 restrictions in place at the time.

Speaking in front of the House of Commons on Monday, Johnson made clear his intention to fix what the report called a ‘failure of leadership’ at No. 10.

Trading in Sterling could continue to be boosted however by expectations of an interest rate hike by the Bank of England (BoE) at their meeting on Thursday, with an expected rate rise of 0.25%.

Whilst markets have already largely priced in the hike, the Pound could still climb following the meeting if the bank offers some hawkish forward guidance.

Euro (EUR) Struggles as ECB Expected to Maintain Cautious Stance

The Euro (EUR) has performed poorly against its riskier rivals today, although the single currency has benefitted from a pull-back in the US Dollar (USD).

An expected dovish stance from the European Central Bank (ECB) at their Thursday meeting as well as ongoing geopolitical tensions are likely to have pulled EUR down.

Whilst some bullish investors are predicting  the ECB may raise interest rates up to three times this year, the earliest predicted for July, President Christine Lagarde has stated that a 2022 rate hike by the central bank is ‘very unlikely’.

Positive employment figures for Germany and the Eurozone on Tuesday may give further credence to Lagarde’s stance.

The possibility of a military conflict at the Ukraine-Russia border has also likely heaped pressure on EUR. Both the US and UK have threatened to impose financial sanctions and travel bans on Russian elites close to President Putin should Russia move troops into Ukraine.

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