ECB Expected To Raise Interest Rates By 75bps On Thursday (EUR/USD, EUR/GBP), UK & US Have Conflicting Economic Outlooks (GBP/USD)

Summary:

• The ECB interest rate decision is unlikely to have much impact on the Euro.
• The markets Reaction to the ECB interest rate decision on Thursday, could be positive for the GBP.
• Sterling increased significantly from the market's opening.

Global Eurozone PMI Composite Output Index decreased

The market is reflecting bullish signals for this currency pair. According to the 'flash' figure, the seasonally adjusted S&P Global Eurozone PMI Composite Output Index decreased from 48.1 in September to 47.1 in October. The indicator indicated that business activity in the eurozone has fallen for a fourth time in a row. The most recent result was the lowest since April 2013 when pandemic numbers were excluded.

A 75bp increase is already anticipated by the market for the meeting on Thursday, although it is unlikely to have much of an impact on the euro. The Eurozone's generally dismal outlook is unlikely to change as today's data strengthen recessionary fears. It is highly challenging to argue for a halt in rate increases as long as inflation stays high, with ECB Chief Economist Phillip Lane saying the bank views the neutral rate as being just above the 1-2% range. If Lane is right, more rate increases would be coming for the zone, which theoretically might hasten a recession.

✕ EUR/USD Price Chart

GBP supported by Boris Johnson being turned away from PM

The market is reflecting bullish signals for this currency pair. The Pound to Euro exchange rate started the new week on a positive note, but it might find it difficult to maintain Monday's gains far beyond the 1.15 level unless this Thursday's European Central Bank (ECB) decision causes the market to turn even further away from the euro. On Monday, the pound gained significantly from the opening price after a faction of the ruling Conservative Party was successful in preventing former Prime Minister Boris Johnson from taking part in the most recent process for choosing a new Prime Minister.

The market's reaction to the European Central Bank's interest rate decision on Thursday, which is widely anticipated to increase its benchmark interest rate by three quarters of a percentage point for a second consecutive time, will likely have a significant impact on the Pound's performance this week.

✕ EUR/GBP Price Chart

UK & US contrasting economic outlook

The market is reflecting bearish signals for this currency pair. The pound to dollar exchange rate has experienced a recent surge and may increase further in the near future, but it runs the risk of falling as the week progresses and attention shifts back to the increasingly contrasting economic outlooks of the UK and the US.

After some members of the governing Conservative Party were successful in preventing former Prime Minister Boris Johnson from taking part in the most recent selection process for the position of Prime Minister, sterling increased significantly from the market's opening, including versus the dollar.

✕ GBP/USD Price Chart

Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com