Pound Euro (GBP/EUR) Exchange Rate Climbs as ECB Leaves Interest Rates on Hold

April 26, 2018 - Written by John Cameron

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Climbs as ECB Leaves Interest Rates on Hold

ECB Proves Dovish – Pound Euro (GBP/EUR) Exchange Rates Tumble

The Pound to Euro (GBP/EUR) exchange rate climbed on Thursday, supported by news that the European Central Bank (ECB) has left interest rates on hold at their latest meeting.

The Governing Council of the ECB voted to keep interest rates at current levels, whilst also asserting that they are expected to remain there for an ‘extended period of time and well past the horizon of the net asset purchases’.

Beyond this, the bank outlined that net asset purchases are expected to run until the end of September 2018, ‘or beyond if necessary’, with the Governing Council waiting to see a sustained adjustment in the path of inflation before making any big moves.

The accompanying press conference with ECB President Mario Draghi’s did little to negate this fall, but he did notably brush off the recent poor data pulses experienced by the bloc this month.
Mr Draghi stated:

‘Incoming information since our March meeting points towards some moderation, but remains consistent with a solid and broad-based expansion of the euro area economy. The underlying strength of the euro area economy continues to support our confidence that inflation will converge toward our inflation aim of below, but close to, 2 per cent over the medium term’.

This outlook did little to prevent GBP/EUR from rising, however.

Pound Sterling (GBP) Exchange Rates UP on Upbeat MUFG Analysis

Sterling found additional support today on an upbeat analysis from the global investment bank MUFG.

The bank’s latest analysis was focused on the recent public finance data from the Office for National Statistics, with interpretations suggesting that the low government borrowing could make the Bank of England (BoE) more confident in raising interest rates this year.

Indeed, Derek Halpenny, Head of Global Markets Research at MUFG was rather optimistic when discussing the state of the UK’s economy:

‘The budget deficit figures for March confirmed that the UK’s finances are in better shape than originally expected. At a time when market participants are focusing more and more on USD downsides risks linked to the potential explosion of the US ‘twin deficit’, the news from the UK is very positive for the Pound’.

In this regard, the overall outlook for a rate hike in May from the BoE remains rather positive, but tomorrow’s upcoming UK GDP readings could potentially knock hawkish sentiment.

Pound Euro (GBP/EUR) Exchange Rate Outlook: UK GDP at the Forefront

The Pound Euro (GBP/EUR) exchange rate could see greater volatility tomorrow as markets respond to the UK GDP results for Q1 2018, a consumer confidence reading for April and a speech from BoE Governor Mark Carney.

Analysts currently expect GDP growth of 1.5% year-on-year, up from the previous score of 1.4%.

The quarterly reading is expected to hold at 0.4%.

It is possible that the severe weather in recent months might have slightly limited the UK’s economic growth, however, particularly with the services sector taking a brief hit.

In regards to Mr Carney, investors will be assessing his comments for any indication that a rate hike in May will occur, with hawkish sentiment liable to bolster the GBP/EUR exchange rate even further.

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TAGS: Pound Euro Forecasts