EUR/GBP slumps below 0.8300 after a dovish ECB rate decision

• The European Central Bank disappointed investors expecting a hawkish tilt, kept rates unchanged, and the APP to end after June.
• An upbeat market mood also weighs on the low-yielding euro, as shown by losses in the EUR/USD and the EUR/GBP.
• The divergence between the BoE and the ECB favors the GBP.

On Thursday, the shared currency weakened against the British pound after the European Central Bank (ECB) unveiled its monetary policy decision and guided market players regarding the end of its Asset Purchasing Program, also known as APP. At the time of writing, the EUR/GBP is trading under the 0.9300 mark at 0.8278.

US equities portray a downbeat market sentiment, despite the European ones finished with gains. Meanwhile, the EUR/USD edges down 0.69% during the day, while the GBP/USD follows the former, sliding 0.45%. Nevertheless, the current central bank divergence, meaning that the Bank of England (BoE) is already hiking rates while the ECB is about to end its QE program, favors the GBP in the near term.

The ECB keeps rates unchanged and will end the QE after June, weighing on the euro

In the European session, the European Central Bank (ECB) decided to keep rates unchanged, while forward-guided investors, regarding the last three bond purchases of the APP. The ECB said that the monthly net purchases under the APP would amount to €40 billion in April, €30 billion in May, and €20 billion in June.

Market players perceived the statement as dovish amid the lack of commitment toward future tightening. The EUR/USD broke towards new YTD lows at 1.0757, while the EUR/GBP dropped to fresh month lows at 0.8249.

In the meantime, ECB President Christine Lagarde’s press conference did not provide further clarification regarding raising rates, which further extended the shared currency losses in the day. Lagarde said that risks to the inflation outlook are tilted to the upside in the near term and added that the APP is very “likely” to end in Q3. The ECB’s President stated that inflation is being driven by energy prices and has intensified across many sectors. She foresees that growth would have remained weak in Q1 2022.

Also read:

• ECB’s Lagarde: Risks to the inflation outlook tilted to the upside in the near-term
• ECB’s Lagarde: APP very likely to end in Q3, though open minded about when in Q3 this occurs

An absent UK economic docket left EUR/GBP traders leaning on Wednesday’s high UK Inflation rate, which topped 7%, and would likely trigger another Bank of England rate hike.

Technical levels to watch