Pound-to-Euro Steady as Markets Brace for ECB Rate Hike

– Written by


David Woodsmith

STORY LINK Pound-to-Euro Steady as Markets Brace for ECB Rate Hike

The Pound Euro (GBP/EUR) exchange rate moved largely sideways on Wednesday as markets remained focused on the European Central Bank’s (ECB) upcoming interest rate decision.

At the time of writing, GBP/EUR was trading at €1.1638, leaving the pairing virtually unchanged from the start of the day.

The Euro (EUR) remained largely rangebound on Wednesday, with traders showing little appetite to make major moves before the European Central Bank’s interest rate decision on Thursday.

A quiet Eurozone data calendar also left the single currency lacking a clear catalyst, while political and geopolitical concerns across Europe continued to constrain EUR.

Rising tensions between Europe and Russia, coupled with political discontent in Germany, appeared to limit the Euro’s scope for further gains.

The Pound (GBP) was similarly subdued on Wednesday, with a lack of fresh UK economic data leaving Sterling without much impetus.

Moves in the bond market provided little guidance either.

Gilt yields ticked higher after fluctuating on Tuesday, but remained below the levels reached last week.

Near-Term GBP/EUR Forecast: ECB Decision Takes Centre Stage

Looking ahead, attention is firmly on the ECB’s interest rate decision on Thursday.

With a 25-basis-point hike already fully priced into the market, the focus is likely to fall on the central bank’s forward guidance.

Markets have been positioned for a hawkish ECB, particularly with Eurozone inflation still well above target. A more assertive outlook could therefore provide the Euro with a boost.

However, the high expectations also leave EUR vulnerable to disappointment.

Some analysts believe the ECB could adopt a more cautious stance after the recent turmoil in European bond markets. Higher yields have already tightened financial conditions, potentially reducing the need for further rate hikes from the central bank.

Such a shift could send the single currency lower.

For the Pound, the UK data calendar remains sparse, which may leave Sterling lacking a clear catalyst. GBP investors could also be reluctant to take large positions ahead of Friday’s British GDP figures.

Even so, domestic developments and further moves in the gilt market could still give Sterling some direction.

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TAGS: Pound Euro Forecasts