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Pound Euro Exchange Rate Muted as Investors await Central Bank Meetings

December 13, 2021 - Written by John Cameron

Pound Euro (GBP/EUR) Exchange Rate Subdued Ahead of Central Bank Meetings

The Pound Euro (GBP/EUR) exchange rate has remained muted ahead of monetary policy meetings for both the Bank of England (BoE) and European Central Bank (ECB) on Thursday.

At time of writing the GBP/EUR exchange rate is at around €1.1729.

Pound (GBP) Benefits from Risk-Off Trading Amid Booster Rollout

The Pound has risen against most of its rivals today after having fallen close to last week’s one year low against the US Dollar this morning. The currency has been boosted by a risk-off trading mood amid further fears regarding the Omicron Covid-19 variant.

Prime Minister Boris Johnson appeared in a pre-recorded statement on Sunday night as he announced the expansion of the UK’s vaccine booster programme.

Sterling’s earlier fall is likely due to the market’s reaction to the recent statement and introduction of ‘Plan B’ restrictions across the country.

The move has brought further uncertainty in the country’s hospitality and travel sectors as traders express concern at how the move may affect their business during the festive period.

The impact of the Omicron variant could also reach the Bank of England (BoE) ahead of its interest rate meeting on Thursday.

Analysts have argued that uncertainty in the markets may increase short-term inflationary pressures, potentially leading the BoE to surprise investors once again and raise rates. If this is the case on Thursday then Sterling could well see downward movement amid mass sell-offs.

Brexit headwinds are also likely to affect the Pound today and in the week ahead, as negotiations over the Northern Ireland Protocol continue to rumble on. Recent talks concerning medicine shipments are said to have been productive and marked a ‘shift in tone’, although repeated threats from DUP leader Jeffrey Donaldson to collapse the Stormont government could dent confidence in Sterling.

Euro (EUR) Slips as Investor Await ECB Decision

The Euro has fallen against its peers today as investors pare back speculative bets ahead of the European Central Bank’s interest rate meeting later this week.

As one of the major central banks to host its monetary policy meeting on Thursday, investors and analysts will be paying close attention to the ECB’s forward guidance.

The central bank has previously stated on a number of occasions that an interest rate hike would come in 2021, and is reportedly mulling over a potential expansion to its stimulus programme.

A report by economists at Scotiabank had the following insight:

‘Prior to the emergence of Omicron, the bank looked set to deliver a less dovish decision and express optimism in the economic recovery. However, the new virus wave and more restrictions that look set to depress output over the next few weeks and perhaps months will see the ECB punt a clearer decision to the new year.’

The ECB’s dovish stance in comparison to the Federal Reserve could weigh on the currency on Thursday and potentially cause downward movement in EUR.

The Euro is also likely to see headwinds from the ongoing dispute concerning gas pipelines between the EU and Russia. Germany has said that it cannot certify Russia’s Nord Stream 2 pipeline due to it not meeting European energy law requirements, whilst Berlaus’ leader Alexander Lukashenko has threatened to suspend the movement of natural gas across its territory in response to sanctions imposed on the country.

GBP/EUR Exchange Rate Forecast: Will Central Banks Surprise Investors?

Later this week the UK’s employment rate figures for October are forecast to fall whilst domestic inflation for November is expected to rise. Should these figures print as expected, it could prompt investors to increase any speculative bets on the Pound ahead of Thursday’s BoE meeting.

The ECB’s Thursday meeting will also be keenly watched by investors, particularly in comparison to the hawkish Federal Reserve. Flash PMIs for December earlier in the day are forecast to show a fall across the manufacturing and services sectors. If these figures print as expected then it could give further evidence of long-term inflationary pressures for the trading bloc.

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