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Pound Euro Exchange Rate Trends Sideways Following ECB Interest Rate Meeting

June 10, 2022 - Written by John Cameron

Pound Euro (GBP/EUR) Exchange Rate Rangebound amid Euro Sell-Off

The Pound Euro exchange rate (GBP/EUR) is trading within a narrow range today. The currency pair may be seeing significant upward momentum limited by multiple factors weighing on Sterling however. Faltering confidence in Prime Minister Boris Johnson, Northern Ireland Protocol tensions, and a poor forward outlook may all be pulling the exchange rate lower today. The currency pair may be seeing any major losses prevented by an continued sell-off in the Euro (EUR).

At time of writing the GBP/EUR exchange rate is at around €1.1751, virtually unchanged from this morning’s opening figures.

Pound (GBP) Slides amid NI Protocol Tensions

The Pound (GBP) is falling against its competitors today. Poor forecasts for the UK economy are likely keeping the currency suppressed. Additionally, fears that the UK government could prompt a trade war with the EU may be limiting bets on GBP today.

Reports have indicated that legislation to override the NI Protocol will be published on Monday. Critics from Brussels, Washington, and within the UK government say they believe that the move may be illegal under international law.

Tensions between the UK and EU over the agreement have continued to grow in the run-up to the legislation’s publication. Rebel Conservative MPs are expected to vote against the legislation in a move that could hamper the government’s efforts.

The 148 MPs voted against Boris Johnson in Monday’s vote of no confidence. Their continued efforts to challenge the PM’s leadership may dent confidence in Sterling.

A report from the Bank of England (BoE) published today may also be pulling GBP lower. The survey by the central bank found that the British public’s inflation expectations have risen to their highest point since 1999.

The figures echo reports from the British Chambers of Commerce (BoC) on Thursday. The BoC forecasts the UK’s economy is set to grind to a halt before contracting in 2022.

Euro (EUR) Drops After ECB Interest Rate Meeting

The Euro (EUR) is falling amid a continue sell-off today. The European Central Bank’s (ECB) interest rate decision on Thursday disappointed markets and likely prompted the pullback in the single currency. A risk-off market mood may also be pushing EUR lower today.

The ECB left interest rates unchanged on Thursday but signalled that it would being to hike rates in July. The central bank’s President Christine Lagarde stated that the first hike would be 0.25%, disappointing markets and pulling EUR lower.

The move was also poorly received by some economists which likely also limited gains for the single currency.

Commerzbank chief economist Jörg Krämer said:

‘The ECB remains behind the curve. It is not enough to just take its foot off the gas, it must also step on the brakes. But that is precisely what it is not prepared to do, which is why we expect inflation to average well above 2% in the coming years.’

The war in Ukraine may also be keeping pressure on the Euro today amid fierce street fighting in the city of Sievierodonetsk.

GBP/EUR Exchange Rate Forecast: Will BoE Raise Rates as Forecast?

Looking to the week ahead for the Pound (GBP), Monday’s forecast rise to GDP could help bolster the currency. Tuesday’s unemployment figures could also help boost Sterling if they rise as forecast.

Thursday’s interest rate decision from the BoE will likely have the most significant impact on GBP, however. The central bank is forecast to raise rates by 0.25% which could boost the Pound. On the other hand, fears that too large an increase could prompt a UK recession may limit any gains.

For the Euro (EUR), the final reading of Germany’s May inflation figures could prompt a rise to the single currency on Tuesday. An uptick to Eurozone inflation on Friday could also have a similar effect. The figures could increase expectations of future rate hike from the ECB.

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