The EUR/GBP currency pair settled below Friday’s high of 0.8679, its strongest level since March 6th, in the wake of the European Central Bank’s and the Bank of England’s policy decisions.
The ECB kept its main refinancing operations rate intact at 2.15% at its March 19th meeting, in line with market consensus.
And, the ECB deposit facility rate was kept at 2.00%.
The decision was framed against a backdrop of uncertainty around inflation and growth linked to joint military operations by the United States and Israel against Iran.
During the subsequent press conference, ECB President Christine Lagarde cautioned that the “increase in energy prices will drive inflation above 2% in the near term”.
Meanwhile, a Reuters report indicated that the ECB might consider discussing an increase in key borrowing costs in April and could move to raise rates in June if elevated energy prices persist. That report triggered a strong upward reaction in the Euro.
At the same time, the Bank of England left its key rate unchanged at 3.75% at its March meeting, as all nine members of the Monetary Policy Committee voted for a hold, surprising market participants.
The decision is viewed as slightly hawkish, as some investors had expected hints of a rate cut. Rate hike expectations for this year have risen following the announcement.
Inflation projections show potential growth to around 3% in Q2 and up to 3.5% in Q3, well above the 2% target. Rising energy costs and Middle East tensions are key drivers.
The BoE also indicated a pause in the easing cycle, preferring to monitor the energy shock before making policy adjustments. Governor Andrew Bailey noted that spare economic capacity could help contain inflation.
The minor Forex pair gained 0.49% for the week.
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