Sterling Weaker on Thursday as Market Focus Shifts to ECB Policy Announcement

Sterling weakened against the dollar in the London session on Thursday as the worsening economic outlook and political woes exerted pressure on the single currency. The market focus shifted to the European Central Bank (ECB) press conference later today.

As of press time, GBP trades at 1.2540 after rebounding from the 1.2500 level earlier today. The British pound also weakened against the euro today as the EUR/GBP pair held around its daily high near 0.8567 or +0.25%.

Commenting on the recent performance of Sterling, Simon Harvey, the head of FX Analysis at Monex Europe, noted that the EUR/GBP dynamics rely heavily on the ECB announcement later today. Harvey explained:

“We have the Bank of England that is naturally going to have to slow its hiking profile given economic conditions and the ECB that is about to start tightening monetary policy, with the risk it is going to have to be quicker in the short term than the market is currently pricing in.”

The controversial ECB policy announcement will be the major momentum driver in today’s trading session, with the central bank expected to announce an end to its multi-year long dovish monetary stance by halting its asset purchase program by the end of the month and announcing a rate hike for July, as the battle to tame worsening inflation intensifies.

Sterling Under Political Pressure After Boris’ Vote of Confidence

Sterling also remained under pressure from the political uncertainty in the UK after British Prime Minister Boris Johnson won a confidence vote earlier this week. However, the PM did not win as many votes as many he might have hoped, highlighting a revolt against him within his own party.

Harvey detailed: “There is a case of waiting to see markets are very much hesitant to price up political risk. We still have some Brexit risk, and we also have some stability risk at play, so there is a direct impact on spot markets at the moment.”