GBP/EUR: Will ECB Drag Euro Lower vs. Pound?
  • Pound (GBP) rises for a fifth day
  • GFK UK consumer confidence improved
  • Euro (EUR) falls after ECB meeting
  • German GFK consumer confidence plunges in February.

The Pound Euro (GBP/EUR) exchange rate is rising for a fifth straight day. The pair rose +0.25% in the previous session, settling on Thursday at €1.1716 and trading in a range between €1.1678 – €1.1738. At 09:00 UTC, GBP/EUR trades +0.6% at €1.1724.

The euro is falling again and is set to fall across the week as investors continue to digest the ECB interest rate meeting yesterday.

While the central bank left interest rates unchanged at the record 4% level in line with expectations, ECB president Christine Lagarde gave no indication about the timeline for interest rate cuts.

However, the market believes that the ECB will be forced to cut interest rates sooner than the summer date that ECB’s Lagarde hinted at in Davos earlier in the month.

The market is now pricing in 142 basis points worth of cuts across this year, which was up from 125 basis points prior to the meeting.  The market is also pricing in a 76% probability that the ECB will start cutting rates in the April meeting.

As well as the ECB meeting, German consumer confidence came in weaker than expected, slumping in February, and high inflation continues to hit morale. German consumer sentiment fell to -29.7, down from -25.4 in January, according to the GFK index. The weak data raises concerns of a prolonged recession in the eurozone’s largest economy.

The pound is drifting higher against a weaker euro after an improvement in consumer confidence. The GFK consumer sentiment index rose to a two-year high in January at -19 from -22 in December and ahead of the -21 forecast.

Despite the ongoing cost of living crisis, the mood among shoppers appears to be improving.

Inflation in the UK unexpectedly rose by 4% in December, dampening hopes of a quick interest rate by the Bank of England.

Attention is turning to next week’s Bank of England trust rate decision, where the central bank is widely expected to leave rates unchanged at a 15-year high of 5.25%.