ECB ready for raising interest rates

By Matthew Boyle

Yesterday saw the minutes from the ECB’s April meeting released and with it signs that they could be readying to hike the EUR interest rate by 50bp as early as July. Members of the ECB council have expressed concerns that rises in inflation could become “unanchored”.

The ECB will need to take measures to combat this, and as a result markets have begun to price in an interest rate hike – one that could be the start of many. Earlier in the week we heard that UK inflation sits at 9%, the highest it has been in 40 years. However, Europe has also posted 5 consecutive months of increasing inflation figures, each time reaching a record high.

This could spell grave danger for GBP/EUR rates as whilst we have seen several hikes by the BoE already this was largely priced in, whilst the ECB haven’t raised in over 10 years. Albeit to date they have opted for the slightly softer approach quantitative easing to help massage the single currency instead, news that their hand may be forced could see rates drop as little of this would be priced in.

Against the USD we saw GBP recover following the inflation news as it means a strengthening of the BoEs interest rate programme against the very clear programme laid out by the FED. GBP>USD rates recovered by around 2 cents bouncing off 2 year lows – perhaps a welcome opportunity to grasp for any USD buyers.

Markets are extremely volatile and unpredictable at present. To add to top line monetary policy and central bank interventions the Ukraine conflict continues, we are seeing signs of a potential global recession, with mounting fears of the Northern Ireland protocol being discarded,  stirrings of a potential UK election and now an outbreak of monkey pox to throw into the mix.

With so much uncertainty, looking to remove risk is paramount to ensure the cost of your transfer doesn’t spiral. We have a number of ways in which we can help you do this, so please don’t hesitate and speak to your consultant at A Place in the Sun Currency today.