ECB Comments push GBP/EUR to 1.14

The euro broadly strengthened in the wake of the European Central Bank’s latest interest rate decision, leaving GBP/EUR to trade at new lows. 
 

What movement have we seen in the currency market?

While the pound put in another poor performance on Thursday, sliding to 1.14 against the euro and touching a low of 1.21 against the US dollar, the euro surged across the board.

EUR advanced by over 0.5% against GBP, AUD, CAD, NZD and JPY as the market responded to the European Central Bank’s latest interest rate decision.

Euro gains against the US dollar were less substantial in light of the high likelihood of a Federal Reserve interest rate hike taking place next week, but EUR/USD did briefly breach 1.06. 

So, what happened?

Initially the reaction to the ECB’s interest rate decision was pretty minimal as the central bank left everything unchanged.

However, Super Mario (the affectionately nicknamed ECB President) gave the euro a big kick higher as he announced positive revisions to Eurozone growth forecasts.

The future path of ECB policy is still pretty unclear, but Draghi stated; ‘We haven’t seen yet any significant development on the wages front, and that is the key point. We are more optimistic about the growth forecast, we have to see how these improved prospects, as far as growth is concerned, translate into higher headline inflation.’

With little news to lend the pound support, the slightly more optimistic outlook put forward by the ECB was enough to drive the GBP/EUR exchange rate to its worst levels of the week so far.

What should you be looking out for?

Next week is set to be a volatile one for the currency market. For one thing, we’ve got the hotly-anticipated Federal Reserve interest rate decision.

If the Fed hikes interest rates, and the odds of that happening are currently sitting at over 80%, the US dollar is likely to surge – potentially causing GBP/USD to drop to its lowest levels since 2016.

But UK news is also likely to trigger GBP volatility next week. Of the data set for release Wednesday’s employment numbers and Thursday’s Bank of England (BoE) interest rate decision carry the most weight.
With the job stats, a dip in average earnings or a disappointing employment change number would inspire pound losses, but the BoE decision could have the power to reverse any previous pound movement.

 As the recent UK PMIs hinted at a slowdown in domestic growth in the first quarter the BoE may opt to err on the side of caution and reiterate that interest rates are as likely to be cut as raised. However, pound volatility is likely to follow any indications that the central bank is leaning more one than another.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.