Will the ECB interest rate decision halt sterling’s rise?

GBP EUR Advances Despite Better German Trade 

The ECB (European Central Bank) have their interest rate decision later today. In recent days sterling exchange rates have once again risen close to yearly highs. GBPEUR and GBPUSD are trading within range of 11- and 15-month highs respectively.

However, Eurozone inflation is still a lot higher than the 2% target set by the bank. Many are expecting another interest rate rise during today’s meeting. Markets are expecting a 25-basis point hike which could lend support to the value of the euro against the dollar and sterling.

As with the stock market and other commodity markets, the currency markets often over-react when something unexpected happens. If the ECB were to raise rates by 50-basis points you could see the value of the euro surge. A halt in rates by the ECB could cause a market sell-off which would lower the value of the single currency.

Last night, the US Federal Reserve raised rates by 25-basis points, which was the 11th hike in rates from the last 12 policy meetings. Following the hike, the dollar is trading softer against the euro and pound.

A 25-basis point hike was widely expected from the Fed; however, several commentators were expecting this to be the final rate hike. Fed Chair Jerome Powell said the bank would take decisions meeting by meeting reacting according to economic data. This has left the door open for further hikes this year, but Powell noted a rate cut is very unlikely this year.

Today’s session could see considerable volatility with US durable goods and jobless claims data released after the ECB.

Tomorrow will mark a busy end to the week with inflation and growth data coming from Spain, France, Germany, and Italy. Another drop in German GDP could fuel recessionary rumours and pile pressure on the euro.