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Pound Euro Exchange Rate to Soar on Dovish ECB Decision?

Pound coin on a Euro banknote

Pound Euro (GBP/EUR) Exchange Rate Slips as EUR Enjoys USD Weakness

The Pound Euro (GBP/EUR) exchange rate has slipped today as the single currency enjoys its strong negative correlation with a tumbling US Dollar (USD). Looking forward, the European Central Bank (ECB) interest rate decision this afternoon could drive notable volatility.

At the time of writing, the Pound Euro exchange rate is trading at around €1.16

ECB Decision to Drive the Euro (EUR) Lower?

The Euro (EUR) is strengthening today, thanks to EUR’s negative trading relationship with USD.

The American currency is facing heavy selling pressure following last night’s interest rate decision from the Federal Reserve. Many analysts believe that yesterday’s rate hike may have been the last in this tightening cycle.

Attention now turns to the ECB’s own interest rate meeting, with the bank set to announce its decision this afternoon.

As with the Fed, a 25bps hike is fully priced in, so investors will focus on forward guidance. The ECB has been careful with its communication in the past. It could be nearing the end of its tightening cycle, but it doesn’t want to undo its hard work by sounding too dovish.

Markets will therefore be analysing the accompanying policy statement and subsequent press conference for clues. If the bank fails to commit to further interest rate rises, we could see EUR slump.

Pound (GBP) Propped Up by Risk-On Mood

Meanwhile, the Pound (GBP) may be resisting steeper losses against the Euro today thanks to its increasingly risk-sensitive nature. Investors are thoroughly upbeat today as hopes of fewer interest rate hikes from the Fed cheer global markets.

Looking ahead, Sterling’s movement today could be impacted by the Confederation of British Industry’s (CBI) latest distributive trades survey.

July’s reading showed that retail trade plunged. The score came in at -25, down from -9 and massively below forecasts of a rise to -2. This was the worst reading since April 2022, and could pile more pressure on the Pound.

UK economic data is then thin on the ground through to the end of the week, meaning Sterling could struggle for a clear direction. Most movement in GBP/EUR could be driven by the single currency.

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