Euro trades flat vs British Pound as markets weigh ECB and BoE policy paths

Source Fxstreet
  • EUR/GBP stays under pressure after failing to reclaim the 0.8660 resistance area.
  • The ECB and BoE face a difficult balance between rising inflation and weaker growth.
  • Traders await UK GDP, German inflation and Retail Sales, followed by Eurozone inflation later this week.

EUR/GBP trades little changed on Tuesday, remaining under pressure after buyers failed to break above 0.8660, a former multi-month support level that is now acting as resistance. At the time of writing, the cross trades around 0.8578.

The subdued price action comes as traders assess Middle East risks and their potential impact on the monetary policy outlook in the Eurozone and the United Kingdom. Crude Oil prices remain elevated as the United States (US) and Iran struggle to make progress toward an agreement that could end the war and restore shipping through the Strait of Hormuz. Higher energy costs keep inflation risks tilted to the upside, forcing policymakers to maintain restrictive interest rates for longer.

The European Central Bank (ECB) has raised interest rates twice this year, lifting the deposit facility rate to 2.50%, while the Bank of England (BoE) has kept its Bank Rate unchanged at 3.75% for six consecutive meetings. Markets expect both central banks to raise borrowing costs in the coming months, although policymakers remain cautious as the Eurozone and the United Kingdom are vulnerable to higher energy costs, leaving them with the difficult task of controlling inflation without placing further pressure on economic growth.

On Tuesday, ECB policymaker Peter Kazimir said the latest rate hike “was unavoidable” and that energy prices “remain a key factor” for the policy outlook. Separately, ECB policymaker José Luis Escrivá said interest rates are “still not in restrictive territory.” He also warned that the global upward trend in long-term bond yields is becoming a concern and “can add pressure to interest rates.”

ECB President Christine Lagarde said on Monday, “We still see upside risks to inflation and downside risks to growth.” She noted, “We see higher inflation ahead but no signs yet that it is becoming embedded.” Lagarde said the ECB considers “a measured response as appropriate to keep inflation in check.”

Following the BoE’s September 17 decision, Governor Andrew Bailey said that if the Middle East conflict “persists for an extended period” and the risk of second-round inflation effects increases, “it is likely that policy may have to tighten.”

The focus now shifts to a busy week of central bank speakers and economic data. Traders will follow UK second-quarter Gross Domestic Product (GDP), German preliminary inflation and Retail Sales on Wednesday, before the Eurozone’s preliminary inflation report on Friday.

Pound Sterling Price Today

The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the Australian Dollar.

USD EUR GBP JPY CAD AUD NZD CHF
USD 0.23% 0.20% -0.03% 0.06% 0.42% 0.37% 0.18%
EUR -0.23% -0.04% -0.27% -0.19% 0.19% 0.14% -0.06%
GBP -0.20% 0.04% -0.23% -0.13% 0.21% 0.18% -0.03%
JPY 0.03% 0.27% 0.23% 0.10% 0.45% 0.40% 0.21%
CAD -0.06% 0.19% 0.13% -0.10% 0.35% 0.31% 0.12%
AUD -0.42% -0.19% -0.21% -0.45% -0.35% -0.04% -0.25%
NZD -0.37% -0.14% -0.18% -0.40% -0.31% 0.04% -0.19%
CHF -0.18% 0.06% 0.03% -0.21% -0.12% 0.25% 0.19%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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