GBP EUR Higher with ECB Plan for July Rate Hike

GBP EUR Higher with ECB Plan for July Rate Hike

The GBP EUR exchange rate recovered from Wednesday’s drop with a 0.10% bounce higher. The European Central Bank has signalled a 25bp interest rate hike in July as expected. The pound sterling is higher as some traders hoped for a 50bp increase.

The GBP to EUR was trying to regain the support level at 1.1700.

European Central Bank ends ultra-loose policy

The European Central Bank announced on Thursday that it would raise interest rates for the first time in over ten years in July to combat soaring inflation. The move was expected by traders and will finally put an end to the era of cheap money in the Eurozone.

The ECB provided a clear path for the end of its stimulatory policy after recent criticism for ignoring ongoing inflation. The central bank will first end its massive bond-buying stimulus on July 1st.

The bank’s governing council will then expect “to raise the key ECB interest rates by 25 basis points” at its next meeting on July 21st, the ECB said in a statement.

The outlook was clarified further by saying that they will raise rates again in September, depending on the situation with the economy.

“The ECB officially ends its long era of unconventional monetary policy,” said ING bank economist Carsten Brzeski.

“Today’s decision shows it’s managed to find a compromise between the doves and the hawks,” Brzeski said.

“A 50 basis point rate hike in July seemed to be fended off by opening the door for 50 basis points in September.”

Some will see the ECB increase as a token effort to silence some critics with the US, UK and other central banks being more aggressive. The ECB’s huge bond-buying efforts are the reason that it is dragging its feet on rates at the expense of the consumer.

Inflation for the 19 euro countries rose to a record of 8.1 per cent last month, much higher than the ECB’s two-per cent target. The bank also cut its growth expectations for the eurozone to 2.8 per cent in 2022 and 2.1 per cent in 2023, from 3.7 and 2.8 per cent.

Boris Johnson warns of ‘wage-price spiral’ as workers struggle

Boris Johnson warned of a “wage-price spiral” that could force the Bank of England to push up interest rates further if workers seek higher pay.

His comments echo a previous statement from the Bank of England governor and seem to suggest that workers should ‘Keep Calm and Carry On’ despite soaring inflation and energy bills. Rail workers are set to go on strike later this month and Johnson’s warning is unlikely to soothe workers’ fears.

“When a wage-price spiral begins, there is only one cure and that is to slam the brakes on rising price with higher interest rates,” he said.

Johnson said the UK economy would be “steering into the wind” in the coming months, and blamed “global pressures”.

The pound sterling was looking to hold the 1.1700 level but with the interest rate picture cleared up, it will need some new catalysts to mount a recovery.

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