- The EUR / GBP maintains its position because the euro remains stronger before the PMI data in the euro zone and Germany.
- The ECB should largely make a drop in the basic points rate in June.
- The Sterling book finds support, because the United Kingdom is considered relatively isolated from the impact of American prices.
EUR / GBP retraces its recent losses from the previous session, negotiating around 0.8510 at the start of European hours on Tuesday. The pair is supported by a stronger euro (EUR), which earns the data versions of the purchasing managers (PMI) in the Euranne area and Germany later during the day. The objective of the market also turns to the figures S&P Global / CIPS PMI of the United Kingdom.
The Euro forces follow inflation data from the robust euro zone published last Friday. However, warmer than expected inflation figures probably do not considerably modify the monetary policy of the European Central Bank (ECB). ECB officials remain focused on the slowdown in economic momentum and minimize the risk of inflation, despite new prices announced by US President Donald Trump, adding external pressure. The markets continue to expect a drop in the rate of 25 base points at the BCE's June meeting, with the overall confident inflation of the ECB, a target of 2% this year.
On the other hand, the pound sterling (GBP) also finds support, because the United Kingdom (United Kingdom) is considered relatively isolated from the impact of American prices, Unlike China or the EU, given that the United States posted a surplus of goods of $ 12 billion with Great Britain in 2024. However, the GBP faces risks in the midst of increasing expectations according to which the Bank of England (BOE) will reduce the interest rates of 25 bases to 4.25% during its political meeting on Thursday.
Investors also envisage the updated economic forecasts of the BOE, which can provide indices on the probability of additional rate drops. Some analysts predict that the Central Bank could adopt a more dominant tone in response to global risk climbing, in particular those linked to President Trump's prices and the potential of a broader economic slowdown.
Central Banks FAQ
Central banks have a key mandate that ensures that there is price stability in a country or region. The savings are constantly faced with inflation or deflation when the prices of certain goods and services fluctuate. The constant increase in prices for the same goods means inflation, the constant prices lowered for the same goods mean deflation. It is the task of the central bank to maintain demand online by refining its policy rate. For the largest central banks such as the American Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BOE), the mandate is to maintain inflation close to 2%.
A central bank has an important tool at its disposal to increase higher or lower inflation, and it is by refining its rate of reference policy, commonly known as interest rate. On pre-communicated moments, the Central Bank will publish a declaration with its policy rate and provide additional reasoning on the reasons why it is left or changed (hiking). Local banks will adjust their savings rates and their loan rates accordingly, which in turn will make people more difficult or easier for people to gain on their savings or for companies to contract loans and invest in their business. When the central bank considerably increases interest rates, this is called monetary tightening. When it reduces its reference rate, monetary softening is called.
A central bank is often politically independent. The members of the Central Bank Policy Board are going through a series of panels and audiences before being appointed to a seat of the board of directors. Each member of this council often has a certain conviction on how the central bank should control inflation and subsequent monetary policy. Members who wish a very loose monetary policy, with low levels and cheap loans, to considerably stimulate the economy while being contained to see inflation slightly greater than 2%, are called “doves”. Members who want to see higher rates to reward savings and want to keep an allusion to inflation at any time are called “hawks” and will not rest until inflation is below 2%.
Normally, there is a president or a president who directs each meeting, must create a consensus between the hawks or the doves and has his last word to be summed up in a vote to avoid equality of 50-50 on the fact that the current policy is adjusted. The President will pronounce speeches which can often be followed live, where the position and the current monetary perspectives are communicated. A central bank will try to advance its monetary policy without triggering violent fluctuations in rates, actions or its currency. All members of the central bank will channel their position towards the markets before a political meeting event. A few days before a political meeting takes place until the new policy is communicated, members are prohibited from speaking publicly. This is called the electricity period.
