EURGBP Drops Ahead of European Central Bank

EURGBP Drops Ahead of European Central Bank

The EURGBP exchange rate was lower on Wednesday as the pound found some support from the recent selling. Thursday brings the latest European Central Bank interest rate meeting and monetary policy. Friday will see the latest UK retail sales figures released.

The EUR to GBP trades at 0.8600 after the latest four day rally in the single currency faded.

Analysts are curious about the ECB meeting

Analysts were expecting quiet ECB July meeting, but it has become the key focus point of the week following the release of the ECB’s strategic review.

With the ECB moving the inflation target from ‘below, but close to 2%’ to ‘2%’ there is room for new commentary in the press conference.

ING bank said:

“While not a discussion for this week, the ECB dovish bias would suggest that the total reduction of the monthly purchases in 2022 will be less than previously expected.

This would further underscore the diverging trend between the ECB and the Federal Reserve and put a lid on any EUR/USD upside while exposing EUR/USD on the downside next year when the Fed should be moving closer to the interest rate hikes.”

The ECB will likely stand off from any hawkish talk as the EU economy lagged behind the UK and US rebound.

BNP Paribas said: “We think policymakers’ commentary over the past week suggests that the ECB will go beyond just changing the forward guidance at its meeting on 22 July”.

The ECB has no reason to adopt a more hawkish tone, but analysts are desperate for action.

Government borrowing drops with reopening

Government borrowing in the UK saw a sharp rebound according to the OBR.

Richard Hughes, chair of the Office for Budget Responsibility, told Parliament that “even in the most benign scenario”, with real interest rates rising to reflect an improvement in economic activity, faster growth would make little difference to the size of public debt.

The comments underline the problems facing governments as they have built up record levels of public debt and are being bailed out by the zero percent interest rates being applied by central banks.

The UK saw its ‘freedom day’ marred by soaring virus figures and the government have said that 60% of virus hospitalizations are from those with two vaccinations.

The UK’s Chief Medical Officer, Chris Whitty, has warned that England could be set back to lockdowns in less than five weeks as cases surge during the third wave. The latest figures have seen over 44,000 cases reported in Britain.

Hospitalisations are said to be doubling almost every three weeks and could hit “quite scary numbers,” according to Whitty. The country’s ‘freedom day’ could be shortlived and this has had a negative effect on the week for the pound.

The EURGBP exchange rate trades at 0.8600 after rally in the European single currency.