Will the ECB help or hinder Sterling exchange rates?

Will the ECB help or hinder Sterling?

Euro exchange rates hang in the balance ahead of today’s European Central Bank monetary policy meeting. The key decision could help or hinder sterling’s position against several of its counterparts.

Sterling exchange rates will react depending on the outcome of their decision. Most affected, would be GBPEUR due to the pairing including the euro, however, cable (GBPUSD) rates could also be affected.

EURUSD is the most traded currency pair globally which means significant movements on the rate can impact other pairings. A strengthening of the dollar against the euro could also lead to cable rates dropping off and vice versa. Due to the volatile nature of today, euro strength against the dollar could push GBPEUR lower but help sterling’s footing against the dollar.

The deposit rate in the EU is 3.75% and current inflation levels sit above 5% which is well above the ECBs target of 2%. Inflation is proving stubborn and is a clear issue for the eurozone, however, economic activity has begun to slow in a number of European countries and the central bank will be cautious in their approach.

A press conference will follow the meeting where President Christine Lagarde will speak. Markets will be looking to decipher any commentary suggesting future monetary policy. A suggestion of further rate hikes could buoy the euro and weaken sterling, where the opposite could cause the single currency to weaken across the board.

Interest rates and monetary policy will be the hot topic in the FX markets for the near future. US Federal Reserve and the Bank of England meet next week for their latest decisions.

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