EUR / GBP downside risk when the ECB meets

EUR / GBP Prices, News, Analysis:

  • Trade-in EUR / GBP In the short term, the European Central Bank’s monetary policy announcement for this session and its president’s press conference will dominate.
  • The ECB and President Christine Lagarde will probably remain dovish, which can weaken EUR/GBP And other euro crosses.

There is a risk that EUR / GBP will fall

The European Central Bank’s announcement of monetary policy in this session could cause the EUR / GBP to fall, even if the ECB leaves all policy instruments in place. The statement itself is neutral to the euro, but the risk is that President Christine Lagarde will remain more dovish than the market at a press conference 45 minutes later.

As I wrote hereThe Eurozone central bank will be pleased if the euro responds little to the meeting. However, as the chart below shows, the EUR / GBP has been trading in a narrow range between 0.84 and 0.85 since October 12th, ripe another leg down to levels not seen since February 2020. It looks like it is.

EUR / GBP price chart, daily time frame (March 19-October 28, 2021)

Source: IG (Click to see larger image)

Inflation concerns in the euro area

The ECB is much more likely to show a move to cut monetary stimulus at its December meeting, when new staff economic forecasts will be available. Prior to that, Lagarde’s problem was that the ECB was much more optimistic about eurozone inflation than the market.

Currently, eurozone inflation is 3.4%, well above the ECB’s 2% target, the highest level in 13 years. Still, Lagarde argues that these high inflation measurements are temporary and violate market expectations that central banks will begin raising deposit rates in late 2022.

If she persuades the market to be right (probably unlikely), the EUR / GBP will plummet, but she simply restates her position and the EUR / GBP decline could be more modest. The sex will be higher.

UK budget ignored

Looking at the UK budget on Wednesday, of course, there was nothing moving the market in the statement of Finance Minister Rishi Sunak. Rarely. However, stock prices of companies like JD Wetherspoons, which benefit from the liquor tax reform, have risen, and yields on 10-year UK government bonds have fallen sharply. However, Sterling is largely unresponsive, and it will be the Bank of England’s Monetary Policy Committee meeting next Thursday that will draw attention among Sterling traders.

— By Martin Essex, Analyst

Feel free to contact us on Twitter @ MartinSEssex

EUR / GBP downside risk when the ECB meets

Source link EUR / GBP downside risk when the ECB meets

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