|

EUR/GBP flat lines above 0.8650 as markets await ECB, BoE rate decisions

  • EUR/GBP trades flat near 0.8665 in Wednesday’s early European session. 
  • ECB is widely expected to hold the key interest rates steady at its upcoming meeting. 
  • BoE is likely to keep interest rates unchanged at 3.75% at its April policy meeting. 

The EUR/GBP cross flat lines around 0.8665 during the early European trading hours on Wednesday. Traders turn to a wait-and-see mode ahead of key interest rate decisions from both the European Central Bank (ECB) and the Bank of England (BoE) on Thursday. 

The ECB is expected to keep its key interest rates unchanged at its upcoming policy meeting on Thursday due to high uncertainty. Nonetheless, rising inflation, driven by energy price volatility from the Iran war, has raised the expectation of a rate hike in June. 

Goldman Sachs analysts see the ECB delivering two 25 basis point (bps) rate hikes in the months ahead. The first being in June, with the next in September, to bring the deposit rate back to 2.50%. Traders will take more cues from the ECB President Christine Lagarde's press conference after the meeting for clues about the outlook for rates.

On the UK’s front, the Bank of England (BoE) is expected to hold interest rates steady at 3.75% in its upcoming decision on Thursday as policymakers buy time to assess the risks stemming from the energy crunch. 

BoE governor Andrew Bailey stated in the last meeting that, given the UK’s weak labour market and a lack of corporate pricing power, there was no immediate need to change policy. However, a UK economist at JPMorgan pointed to strong business activity readings and expansion in Gross Domestic Product (GDP) in February as underscoring the inflation risks.  “We expect the BoE to create space for a potential near-term hike, with incoming data determining whether and when it will act,” he said. 

ECB FAQs

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.

Author

Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

More from Lallalit Srijandorn
Share:

Editor's Picks

GBP/USD: Downward-sloping trendline near 1.3470 remains key barrier

The British pound faces selling pressure against its major currency peers, trading 0.1% lower at around 1.3420 against the US Dollar during the European trading session on Tuesday.

EUR/USD Price Forecast: Needs to take out 1.1600 decisively for fresh upside

The Euro (EUR) trades with caution at around Monday’s low of 1.1500 against the US Dollar (USD) during the European trading session on Tuesday. The major currency pair is expected to remain volatile as investors await key United States (US) economic release this week to get meaningful cues regarding the interest rate outlook.

Aave: Bearish RSI divergence risks a 20% drop despite steady DeFi deposits

Aave (AAVE) extends a mild near-term recovery on Tuesday, holding above its 50-day Exponential Moving Average at $90.80. Aave protocol’s V3 deployment on Monad blockchain recorded over $500 million in deposits over the last month, reflecting increased user adoption.

US JOLTs report in focus
In the US, the June JOLTs report will be in the spotlight. Job openings have increased modestly this year, which has historically predicted rising wage cost pressures ahead. June trade balance data will also be released in the afternoon and the preliminary reading pointed towards a stable trade deficit from May. The Fed's Schmid (non-voter, hawk) will be on the wires overnight.
9-3: Is the Federal Reserve’s vote tally Warsh's new forward guidance?
The rate did not move. Neither did the statement, and that’s the more interesting fact. Set the July 29 Federal Open Market Committee (FOMC) statement beside the one issued on June 17, and the two documents are identical apart from a single verb and a paragraph at the bottom naming three dissenters.