Pound Euro Exchange Rate Muted Following ECB Interest Rate Decision

Modified: Thursday, 10 March 2022 16:05 BST - Written by John Cameron

STORY LINK Pound Euro Exchange Rate Muted Following ECB Interest Rate Decision

Pound Euro (GBP/EUR) Exchange Rate Subdued after Russia-Ukraine Talks

The Pound Euro (GBP/EUR) exchange rate is trading within a narrow range today. A hawkish stance from the European Central Bank (ECB) following their meeting today is helping to limit losses for the Euro (EUR) against its rivals. Additionally, a lack of progress following talks between Russia and Ukraine is also likely to drive investment away from the Pound (GBP) to safer currencies.

At time of writing the GBP/EUR exchange rate is at around €1.1920, virtually unchanged from this morning’s figures.

Euro (EUR) Dips as ECB Leaves Interest Rates Unchanged

The Euro (EUR) is dropping against many of its rivals today. Significant losses for EUR are likely being prevented by a hawkish tact from the ECB.

Despite deciding to leave interest rates unchanged, the ECB announced on Thursday that they would be ending its programme of quantitative easing sooner in the third quarter of 2022. The move surprised investors and prompted a flurry of trading on the Euro.

It its statement following the meeting, the ECB said that any interest rate hikes would be ‘gradual’ and would only change should inflation remain well above 2%. The ECB also raised its inflation forecast to 5.1% for 2022 and cut its growth predictions in the face of the war in Ukraine.

Carsten Brzeski, global head of macro at ING, said:

‘All in all, today’s decisions are a good compromise, keeping maximum flexibility in a very gradual normalisation of monetary policy. A first rate hike before the end of the year is still possible.’

A lack of fruitful progress in first-round diplomatic talks between Russia and Ukraine is pushing EUR further down today. The talks between Russian foreign minister Sergei Lavrov and his Ukrainian counterpart Dmytro Kuleba took place in Turkey on Thursday.

Speaking after the talks, Kuleba said:

‘I want to repeat that Ukraine has not surrendered, does not surrender, and will not surrender.’

Pound (GBP) Slides as Russia-Ukraine Talks Falter

The Pound is falling against many of its rivals today. A retreat in global risk appetite is limiting gains for Sterling in the face of further escalation in the Russia-Ukraine conflict.

Significant losses for the Pound may be underpinned today by expectations of a rate hike from the Bank of England (BoE) at their next meeting. Analysts feel that the BoE is likely to announce a much smaller rate hike than previously anticipated in the face of the Ukraine-Russia conflict. The central bank has faced calls for more aggressive rate hikes in order to combat soaring inflation.

Salman Ahmed, global head of macroeconomics at stockbroker Fidelity International, said:

‘Policymakers are facing an unenviable choice between acting hawkish to get inflation under control at the risk of meaningfully damaging growth, and letting inflation run unchecked in order to protect growth as much as possible.’

A strong US Dollar (USD) is also potentially limiting gains for the Pound today. Above-forecast US inflation figures on Thursday and fresh uncertainty surrounding the Russia-Ukraine conflict has seen investors flock to the safe-haven ‘Greenback’.

Finally, the Pound could see further headwinds today after talks regarding the Northern Ireland Protocol resumed earlier this week. Both the UK and EU have downplayed prospects of any rapid progress however ahead of the Stormont Assembly elections.

GBP/EUR Exchange Rate Forecast: Will UK GDP Figures show Strong Recovery?

Looking to the week ahead for Sterling, a forecast rise to GDP figures for January could help bolster the Pound on Friday. In contrast, a predicted widening of the UK’s trade deficit in January prevent any significant climb for GBP.

With no further significant data for the Euro this week, the single currency is likely to continue to be driven by investor sentiment surrounding the ECB’s interest rate decision. The Russian invasion of Ukraine will also likely to keep pressure upon EUR.

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TAGS: Pound Euro Forecasts