GBP EUR Supported by Lagging ECB Rates 

The GBPEUR exchange rate gained support after last week’s ECB rate hike meeting saw a 50bps hike in interest rates. Despite making a move to kick-start its ‘normalisation’ of monetary policy, the ECB still lags behind other central banks in its actions to curb inflation. The EU is in talks to boost gas supplies from Nigeria as it looks for alternatives to Russian supply. 

The GBP to EUR opened the week at 1.1750 and traded at 0.30% higher to 1.1790 on Monday. 

EU in talks with Nigeria over possible gas supplies

The European Union is in negotiations to buy gas from Nigeria as the bloc scrambled to find new stores ahead of the winter. 

Nigeria plans to reopen its Trans Niger pipeline after August, opening up further gas exports to Europe. The EU currently imports 14% of its LNG from the African nation. According to officials, there is potential to double this. Russia provides 40% of the EU’s gas. However, this still leaves a hole of 26% of the total gas supply.  

Theft and vandalism impacted oil and gas production in Nigeria, rendering LNG at 60 per cent capacity. There are now plans to increase security and get more gas flowing. However, the supply is unreliable for the EU if there are further problems. 

Matthew Baldwin of the EC’s energy department said that if the eurozone could get past 80 per cent, additional LNG may be available for spot cargoes. Nigerian officials were open to talking at the end of August. The country believes it can deliver real progress on supplies.  

Rabobank expects two more hikes of 50bps for the euro

Rabobank shared its research on the euro following last week’s 50bps rate hike. Analysts expect another two of the same size. 

  “The ECB delivered a 50bp hike, partly due to inflation concerns and partly a trade-off in return for a relatively unrestricted Transmission Protection Instrument (TPI). Seeing the ECB’s continued inflation concerns, we have pencilled in two follow-up hikes of 50bp,” the bank’s analysts said. After this surprise hike, the Council abandoned predicting its next steps, dropping most of its rates guidance. 

The euro was largely unmoved from the first rate hike after traders had priced in expectations at either 25 or 50%. The ECB decided to “take a larger first step on its policy rate normalisation path than signalled at its previous meeting.” 

They also said there would be additional hikes as early as September. However, for traders, the pound and US dollar are ahead of the curve versus the ECB, making those currencies more attractive.

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