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Pound Euro Exchange Rate to Sink Further on ECB Interest Rate Decision?

Pound Coin on Euro Banknote GBP/EUR

GBP/EUR Exchange Rate Sours as Credit Suisse Shares Soar on Lifeline

The Pound Euro (GBP/EUR) exchange rate slips as fears of a European banking collapse were allayed with a £44bn lifeline.

At time of writing the GBP/EUR exchange rate is around €1.1262, a 0.66% fall from this morning.

Euro (EUR) Supported by Credit Suisse Bailout

Meanwhile, the Euro (EUR) is enjoying a surge of demand in the wake of Credit Suisse’s £44bn bailout. With the banking sector in crisis yesterday, fears over a contagion weighed heavily on the market. However, with reassurances from one of Credit Suisse’s biggest investors, and a hefty bailout from the Swiss National Bank (SNB), the crisis appears to have been averted.

In light of the bailout, shares for Credit Suisse soared by 30%, lifting considerably from the record low it suffered from yesterday. Ammar Al Khudairy, Chairman of Saudi National Bank, one of Credit Suisse’s biggest investors, said that that the market turmoil yesterday was unwarranted . He added:

‘If you look at how the entire banking sector has dropped, unfortunately, a lot of people were just looking for excuses. It’s panic, a little bit of panic. I believe completely unwarranted, whether it be for Credit Suisse or for the entire market.’

Looking ahead, investors will be keenly waiting for the interest rate decision from the European Central Bank (ECB). Despite an expected aggressive 50bps rate hike, the market will be aware that the central bank will be cautious amid fears of a banking collapse. A dovish forward guidance from the ECB could cause the Euro to slip.

Pound (GBP) Undermined by Shaky Economic Outlook

Meanwhile, the Pound (GBP) is struggling for demand this morning as concerns over the economic outlook continue to trouble investors. Despite a modestly upbeat Spring Budget delivered by Chancellor Jeremy Hunt, concerns over continually falling living standards offset the upwardly revised forecasts.

The Resolution Foundation, the poverty thinktank, has cautioned that the UK is on track for a ‘disastrous decade’ of high taxes, stagnant incomes, and persistent cuts to public services. By the end of 2028, household incomes are forecasted to be lower than before the pandemic. With the Budget aimed at providing long-term growth, underlying issues in the UK were left untouched, according to Torsten Bell, Chief Executive of Resolution Foundation. Bell added:

‘But stepping back, the UK’s underlying challenges remain largely unchanged. We are investing too little and growing too slowly. Our citizens’ living standards are stagnant. We ask them to pay higher taxes, while cutting public services.’

Looking ahead, the Pound could continue to struggle for demand as the trading calendar remains thin for the rest of the week. A wavering market sentiment, and fears of a banking sector collapse, the Pound could struggle for demand.

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