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Pound Euro (GBP/EUR) Exchange Rate Tumbles as ECB Signals Possible July Rate Hike

Pound Euro (GBP/EUR) Exchange Rate Stumbles amid ECB Rate Hike Speculation

The Pound Euro (GBP/EUR) exchange rate is tumbling today. Speculation over interest rate hikes from the European Central Bank (ECB) is pushing the Euro (EUR) to two-week highs against many of its risk-averse rivals.

On the other hand, trading in the Pound (GBP) is subdued as investors appear to be awaiting Friday’s speech from Bank of England (BoE) Governor Andrew Bailey.

At time of writing the GBP/EUR exchange rate is at around €1.1985, which is down roughly -0.5% from this morning’s opening figures.

Euro (EUR) Soars as ECB’s de Guindos Hints at July Rate Hike

The Euro (EUR) has hit two-weeks highs today against multiple rivals and is continuing to make gains. Heightened expectations of an imminent interest rate hike from the ECB are helping to bolster the single currency.

Speaking in an interview published today, ECB Vice-President Luis de Guindos stated that an interest rate hike in July or September was ‘possible’.

Also speaking today, ECB President Christine Lagarde said that the central bank would ‘maintain optionality, gradualism, and flexibility’ in the face of high uncertainty.

This language reflects a shift in tone from the ECB. The central bank has previously been dovish in its rhetoric in the face of soaring inflation.

The final reading of March’s Eurozone inflation rate saw figures remain at a record high of 7.4%. Markets are placing bets on three 0.75% rate hikes from the ECB in 2022.

Pound (GBP) Edges Lower as Traders Await Bailey Speech

The Pound (GBP) is slipping against many of its rivals today. Significant bets on Sterling seem to be limited ahead of a speech on Friday from BoE Governor Andrew Bailey.

Bailey has previously stated that the central bank has ‘softened its language’ regarding interest rate hikes.

Revised growth outlooks from the International Monetary Fund (IMF) may also be weighing on GBP today. Whilst the UK is expected to be the joint-best G7 performer this year, the IMF is predicting that the country will see an expansion of just 1.2% in 2023.

The war in Ukraine and the Covid-19 crisis were highlighted as leading causes for the revised figures.

Pierre-Olivier Gourinchas, IMF’s economic counsellor and director of research, said:

‘Overall risks to economic prospects have risen sharply and policy trade-offs have become ever more challenging.’