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The Pound to Euro exchange rate rose from near 18-month lows as Sterling featured among the better performing advanced economy currencies in London trade on Thursday, and it could be likely to remain supported above 1.1611 through a looming interest rate decision from the European Central Bank.
GBP/EUR traded buoyantly as the US Dollar recovered some earlier lost ground in European trade, having fallen alongside the greenback on Wednesday when currencies of current account surplus jurisdictions outperformed, though much is now set to be determined by an imminent interest rate decision.
“With markets already expecting very aggressive ECB easing in the coming months and quarters, we believe that the ECB would struggle to deliver a meaningful dovish surprise,” says Valentin Marinov, head of FX research at Credit Agricole (EPA:CAGR) CIB, in Thursday market commentary.
Previously, Sterling unwound all of Tuesday’s rally previously on Wednesday but its losses were limited by the tightened limits that were enforced in EUR/CNY, and thereby in EUR/USD, from Beijing. These prevented EUR/CNY from rising above 8.3424, and led to suppressive pushback around 1.1387 in EUR/USD.
Above: GBP/EUR at 15-minute intervals with ICE (NYSE:ICE) US Dollar Index. Click for closer inspection.
The looming policy decision is the highlight of the calendar on Thursday, and might see the Pound to Euro rate testing lows around 1.1611 if the central bank surprises against market expectations for a more dovish stance.
However, much market attention and focus is currently on US trade policy, its tit-for-tat tariff spat with China and the risk of a similar rupture with the European Union as part of a so-called trade war in which the Euro and Europe more broadly would at least appear to be starring as something of a church in Pergamos.
“German/EU firms are lobbying to ‘give China a second chance’ --and why wouldn’t Europe ‘try again’ with the economy wiping out its auto industry and propping up the Russian war-economy, which the EU is rearming against?-- as some worry the EU will sleepwalk into the China bloc due to its own rigidities. That outcome could risk making the US outright adversarial,” says Michael Every, a strategist at Rabobank.
“It’s unclear what the ECB would do in those worst-case scenarios, and presumably they won’t even be alluded to today. Expect them to remain cryptic. Expect them to remain cryptic,” he adds, in Thursday market commentary.
Above: GBP/EUR at weekly intervals with Fibonacci retracements of 2022 recovery highlighting possible areas of technical support for Sterling, and shown alongside ICE US Dollar Index. Click for closer inspection.
An original version of this article can be viewed at Pound Sterling Live