Euro flatlines against British Pound as traders brace for ECB rate decision

The EUR/GBP cross trades on a flat note near 0.8625 during the early European trading hours on Wednesday. Traders prefer to wait on the sidelines ahead of the European Central Bank (ECB) interest rate decision on Thursday. On Friday, the monthly UK Gross Domestic Product data will provide fresh directions on the Bank of England's (BoE) rate path.

Growing speculation that the ECB will deliver a rate hike at its June policy meeting could provide some support to the Euro (EUR). The ECB is likely to raise the key interest rates for the first time in almost three years on Thursday. This move would make the central bank the first among its major peers to tighten policy in reaction to a surge in energy prices linked to the conflict in the Middle East.

Traders will closely watch the ECB’s press conference after the rate decision. “Lagarde may provide some indication of the ECB’s next move after she muddled communication on the rate outlook in March. We expect her to be clearer than in the past that a second hike may be in the pipeline,” said Simona Delle Chiaie, chief euro-area economist at Bloomberg.

On the UK’s front, Bank of England (BoE) policymaker Alan Taylor said earlier on Monday that interest rates at their current level ‌were restrictive for the economy and he did not see the need for a rate hike to tackle inflationary pressures that have grown as a result of the Iran war. Last week, BoE governor Andrew Bailey stated that the UK central bank is in no rush to raise interest rates while the outcome of the Iran war remains uncertain and the UK’s growth rate stays weak. 

Financial markets had expected the Bank of England (BoE) to cut interest rates twice this year to 3.25%. Since the US-Iran war began, the situation has reversed, and now a rise of 25 basis points (bpd) before December is projected, according to CNBC.