EUR/GBP holds gains above 0.8400 after ECB decides to leave rates unchanged

EUR/GBP gains ground as ECB maintains current interest rates at Thursday’s meeting.
ECB has maintained its main refinancing rate at 4.25%, as expected.
ECB President Christine Lagarde is expected to emphasize the need for more data to ensure confidence in the disinflation process.

Akhtar Faruqui FXStreet

EUR/GBP extends its gains for the second successive session, trading around 0.8420 during the European hours on Thursday. The Euro remains strong as the European Central Bank (ECB) decided to maintain its main refinancing rate at 4.25%, as expected, at its July Monetary Policy Meeting. The ECB's deposit facility rate also remains unchanged at 3.75%.

Traders are now looking forward to the ECB Press Conference later today, where ECB President Christine Lagarde will discuss monetary policy. Lagarde is unlikely to outline a specific path for rate cuts but is expected to emphasize the need for more data to ensure confidence in the disinflation process before considering further policy easing.

On the GBP’s front, the UK Claimant Count Change, which measures the number of people claiming jobless benefits, rose to 32.3K in June, surpassing market expectations of 23.4K. The previous month's figure was revised from 50.4K to 51.9K. Additionally, the ILO Unemployment Rate held steady at 4.4% in the three months to May, matching the previous period's rate. The market consensus was also for a 4.4% reading.

Meanwhile, the Office for National Statistics reported an Employment Change of 19.0K for the three months to May, indicating an increase in the number of employed persons. The previous reading had shown a decrease of 140K.

On Wednesday, the final UK Consumer Price Index (CPI) inflation figures met expectations, but a larger-than-anticipated decline in UK Producer Price Index (PPI) inflation briefly put pressure on the British Pound.

Traders anticipate the release of the UK Retail Sales data on Friday. Expectations are for a 0.4% month-over-month decline in June, following the previous month's 2.9% increase. Despite this, Retail Sales are forecasted to rise by 0.2%, compared to the prior 1.3% increase.

Economic Indicator

ECB Main Refinancing Operations Rate

One of the three key interest rates set by the European Central Bank (ECB), the main refinancing operations rate is the interest rate the ECB charges to banks for one-week long loans. It is announced by the European Central Bank at its eight scheduled annual meetings. If the ECB expects inflation to rise, it will increase its interest rates to bring it back down to its 2% target. This tends to be bullish for the Euro (EUR), since it attracts more foreign capital inflows. Likewise, if the ECB sees inflation falling it may cut the main refinancing operations rate to encourage banks to borrow and lend more, in the hope of driving economic growth. This tends to weaken the Euro as it reduces its attractiveness as a place for investors to park capital.

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