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Pound Euro Exchange Rate to Endure Volatility Post ECB?

Pound coin on a Euro banknote

Pound Euro (GBP/EUR) Exchange Rate Narrows Ahead of ECB Decision

The Pound Euro (GBP/EUR) exchange rate is trading within narrow boundaries this morning, as investors look ahead to the European Central Bank’s (ECB) imminent interest rate decision.

At the time of writing, GBP/EUR is trading at around €1.1624, showing little movement from the morning’s opening rates.

EUR to See Fresh Volatility Post ECB Decision?

While the Euro (EUR) is currently trading quietly, investors are looking ahead to the afternoon wherein the European Central Bank is due to unveil its latest interest rate decision.

Economists have begun to expect that the ECB will pause its current tightening cycle, but will likely remain hawkish, leaving the door open to future rate hikes.

If this occurs, the common currency may strengthen against its peers as investors move to bet on future tightening.

However, owing to recent downbeat EU data, the ECB could take a more dovish approach. Inflation seems to have turned a corner, and the Eurozone economy is on a precipice. However, this cautious stance could weaken the common currency.

The decision is then followed by a press conference from ECB President Christine Lagarde. This may bring additional volatility to the Euro, depending on how she fields questions. Hawkish remarks could bring strength.

President Lagarde is scheduled to speak again on Friday morning, which could bring further volatility to EUR exchange rates.

Elsewhere, risk appetite will likely play a role in shaping the common currency through to the end of the week’s trade.

As a safer currency than the Pound (GBP), a downbeat market mood could lift it above the increasingly risk-sensitive Sterling.

Wavering Trade to CAP GBP?

For the rest of today’s session, the Pound (GBP) is unlikely to see much in the way of directional trade, due to a lack of impactful data releases.

Because of this, the focus is likely to remain on the Bank of England’s (BoE) future direction. While markets still anticipate a 25bps hike at the BoE’s September meeting, further tightening beyond this is seeming unlikely.

With this in mind, Sterling may struggle to attract firm support from investors as they continue to pare back their bets on further tightening.

Elsewhere, continued analysis of the UK’s economic outlook could weigh on GBP. Recent releases have painted a bleak picture of the UK economy, with GDP coming in far below expectations.

Any further discussions could further dampen Sterling, potentially weakening it through to the end of the week’s session.

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