GBP EUR higher after European Central Bank rates

The GBP/EUR exchange rate was higher after the last meeting of the European Central Bank (ECB) on Thursday. The central bank did not raise interest rates as expected, but plans to withdraw its stimulus efforts sooner.

It will be the first meeting of political decision-makers since the beginning of the war. There has been talk of intervention for the broken euro, but it may be through speech initially.

The GBP against the EUR is trading at 1.1910 after a three-day decline.

European Central Bank meeting holds rates, accelerates stimulus removal

The European Central Bank kept interest rates at 0% on Thursday as the bank takes a cautious approach following the invasion of Ukraine.

While the ECB is still expected to follow the US Federal Reserve (Fed) and Bank of England (BoE) with several rate hikes this year, analysts believe the pace could be slower than previously forecast. The ECB will also end its pandemic asset purchases faster than it had expected.

“If incoming data confirms the expectation that the medium-term inflation outlook will not weaken even after our net asset purchases end, the Governing Council will conclude the net purchases under the APP in the third quarter,” the bank said.

The ECB had been more bullish with rate hikes, hoping inflation would be temporary.

“Given that the ECB has been so far behind the curve in terms of policy tightening, the last thing it would have wanted to face was another inflationary shock. This is precisely what happened with the Russian invasion of Ukraine, and inflation in the Eurozone should now be higher for longer,” said Paul Craig of Quilter Investors.

“Unlike the Fed and the Bank of England, which either raised rates or signaled that they would rise in the very near future, the ECB has so far held firm, despite the expectation that a warmongering movement is reported at this meeting,” he added.

UK inflation pegged at 8.3%, Capital Economics says

Capital Economics said of the UK: “The UK is not as exposed to the economic consequences of the war in Ukraine as the rest of Europe. Even so, in response to the war-induced spike in global commodity prices, we have revised our inflation forecast significantly upwards and trimmed our GDP growth forecast slightly.

The group now expects inflation to rise from 5.5% in January to a peak of 8.3% in April and to remain above 6.0% throughout the year and above 3.0% for most of next year.

This is in line with the Resolution Foundation’s thinking this week and the UK economy will grow by 3.5% this year, up from 4% previously.

Meanwhile, the UK has frozen the assets of seven prominent oligarchs, including Roman Abramovich, which could have further implications for investment and property in the country. Chinese investors will think twice about investing in the UK as China remains loyal to Russia and holds on to Taiwan.