GBP/EUR exchange rate midweek update: euro boosted by ECB interest rate comments

(28/02/2024)

The GBP/EUR exchange rate was subdued on Monday morning in anticipation of Bank of England (BoE) and European Central Bank (ECB) speeches, before drifting below 1.17 once they were delivered.

The euro was spurred by ECB President Christine Lagarde, who refused to provide clues on the timing of interest rate cuts. Her hawkish comments raised investor bets that the central bank will keep borrowing costs on hold for longer, dragging the pound to euro exchange rate lower in the process.

Lagarde stated: “These interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to ensuring that inflation returns to our two per cent medium-term target in a timely manner. The current disinflationary process is expected to continue, but the governing council needs to be confident that it will lead us sustainably to our two per cent target.”

The pound remained under pressure on Tuesday amid cooler-than-expected food inflation data for February that added to interest rate cut speculation.

The British Retail Consortium (BRC) shop price index showed that shop price annual inflation eased by 0.4% from January, indicating that pressure is being relieved on consumers as the cost of living improves.

German economic jitters kept a lid on euro gains. The latest GfK consumer sentiment index showed that confidence remains low within the Eurozone’s largest economy, as economic uncertainty is perpetuated by rising prices.

The GBP/EUR pair was fluctuating in a narrow range a fraction below 1.17 on Wednesday under the influence of a gloomy market mood and declining economic sentiment in the bloc.

The pound was left rudderless in the absence of UK data, bringing comments from Dave Ramsden the previous day into sharp focus, which lent the pound modest support. The BoE Deputy Governor said that inflation remains too high and more evidence that price pressures are softening is required before he would consider voting for an interest rate cut.