Sterling holds firm before ECB decision as euro trade nears yearly low
Sterling remains steady against the euro as traders await the European Central Bank's policy decision, with limited scheduled UK news leaving the cross driven mainly by external events. The euro is trading near the bottom of its range for the year against the pound, while markets focus on how ECB guidance could shape expectations for further rate moves.
Highlights
- Euro trades at 86.3 pence, near year lows, as markets await the ECB's 1215 GMT announcement expected to confirm a rate hike.
- Sterling remains supported against the euro and steady at $1.3357 versus the dollar, driven by revised BoE rate expectations amid Middle East tensions.
- Upcoming British economic data and the Bank of England policy meeting next week are expected to provide additional direction for euro-sterling trading.
ECB decision shapes near-term currency trading
As reported by Reuters, the euro is last at 86.3 pence, flat on the day but close to the lower end of its trading range so far this year. Markets are watching the ECB's announcement at 1215 GMT, where a rate hike is seen as almost certain, with attention turning to whether President Christine Lagarde signals how policy may evolve later in the year.Pricing for the ECB has shifted from expectations of no change this year to expectations of rate hikes, and Thursday's meeting is expected to help traders refine their views on how many increases may follow. With little scheduled data from Britain in the immediate term, the ECB meeting stands as the main driver for the euro-sterling pair.
BoE outlook and external risks support sterling
The pound has been supported against the euro in recent months by broader risk sentiment and by traders revising their Bank of England outlook from rate cuts this year to hikes because of the conflict in the Middle East. Sterling is also steady against the dollar at $1.3357.A batch of British economic data due next week, along with a Bank of England policy meeting, is expected to provide the other key part of the picture for euro-sterling traders. Until then, analysts at Monex Europe say sterling is likely to trade mainly on external forces, including the ECB decision, U.S. producer price data and developments in the Middle East.
In our earlier article on the ECB’s first potential rate hike since 2023, we noted that elevated energy prices linked to the Middle East conflict were pushing eurozone inflation back above the 2% target, with May inflation reaching 3.2%. We also highlighted that while a 25-basis-point move looked likely, markets were focused on President Christine Lagarde’s guidance on whether additional tightening could follow later in the year as growth risks build.
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