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Pound Euro Exchange Rate to Slip on ECB President Lagarde Speech?

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GBP/EUR Exchange Rate Wavers as BoE Governor Testifies on Banking Crisis

The Pound Euro (GBP/EUR) exchange rate is fluctuating this morning after Bank of England (BoE) Governor Andrew Bailey testified before the Treasury Committee over the recent banking collapses.

At time of writing the GBP/EUR exchange rate is around €1.1371, relatively unchanged from this morning’s levels.

Pound (GBP) Quiet Despite Reassurances over UK Banking Sector

The Pound (GBP) remains fairly subdued this morning as Bailey testified before the Treasury Committee over the recent collapse and subsequent rescue of Silicon Valley Bank.

Ongoing concerns over how surging interest rates are impacting the financial markets, MPs grilled Bailey over the strength of the UK banking system, and how further collapses can be avoided. In defence of the UK financial sector, Bailey responded:

‘Silicon Valley Bank collapse was fastest since Barings, (and) Credit Suisse was company-specific issue. I don’t think any of these features of recent bank problems are causing stress in the UK. We are in a period of heightened tension and alertness.’

Lending modest strength to Sterling, however, were more hawkish comments from Bailey last night. Speaking of the central bank’s strategy going forward, he said that the BoE will be conscious of persisting inflationary pressure. Bailey said:

‘If (inflationary pressures) become evident, further monetary tightening would be required. MPC´s response will be firmly anchored in the emerging evidence. Evidence has pointed to more resilient activity in the economy.’

Looking ahead, BoE Policymaker Catherine Mann will be speaking at an event tomorrow. If she maintains a hawkish rhetoric, and hints at further tightening, Sterling could climb.

Euro (EUR) Undermined by Persistent Fears in the Banking Sector

Meanwhile, the Euro (EUR) is struggling for a clear direction this morning in the wake of comments from Jose Manuel Campa, Chairman of the European Banking Authority (EBA).

Speaking with the German Handelsblatt newspaper, Campa warned that the financial system risks were still elevated and increased interest rate hikes could exacerbate the pressures.

Lending some modest support to the Euro are elevated rate hike bets. ECB policymaker Isabel Schnabel spoke of inflation remaining ‘sticky’, despite starting to fall across the Eurozone. With underlying price pressures continuing to hamper the economy, Schnabel argues that further interest rate hikes could be necessary.

Looking ahead, European Central Bank (ECB) President Christine Lagarde will be making a speech at the opening ceremony at the Bank for International Settlements’ Innovation Hub Eurosystem Centre. Any comments on how the ECB intends to continue battle inflation could influence the Euro.

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