GBP/EUR Rate Climbs after European Central Bank Says Lady Not for Turning 

"The Governing Council is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area. The euro area banking sector is resilient," - European Central Bank.

© European Central Bank, reproduced under CC licensing

The Pound to Euro exchange rate climbed while the EUR/USD dipped from intraday highs after the European Central Bank (ECB) pushed ahead with an earlier announced increase in all of its interest rates but said little about how it might be likely to proceed in the months ahead. 

Europe's single currency struggled after the ECB raised the rates charged or paid on its main refinancing operations, marginal lending facility and commercial bank deposit facility lifted to 3.5%, 3.75% and 3% respectively but offered only ambiguous words about the outlook. 

"The elevated level of uncertainty reinforces the importance of a data-dependent approach to the Governing Council’s policy rate decisions, which will be determined by its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission," the bank said in its statement. 

"The Governing Council is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area. The euro area banking sector is resilient, with strong capital and liquidity positions. In any case, the ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy," it added.

Thursday's commitment "to respond as necessary to preserve price stability and financial stability," could mean the bank is still likely to continue raising interest rates in the months ahead and irrespective of the conditions in financial markets.

Above: GBP/EUR shown at 15-minute intervals alongside EUR/USD. Click image for closer inspection.

But the ECB stopped short of pre-committing to any specific further action in the way that it had done back in February when the bank raised all lending benchmarks by half a percentage point and warned in its policy statement that another such move would be likely in March. 

Updated inflation forecasts suggested on Thursday that European price pressures are likely to remain stronger in the year ahead than had been expected at the time of the December meeting including once changes in volatile energy and food prices are overlooked. 

That indicates the Governing Council would almost surely be biased toward further increasing interest rates in the absence of a significant financial shock. 

"Market interest rates rose considerably in the weeks following our last meeting. But the increase has strongly reversed over recent days in a context of severe financial market tensions," President Christine Lagarde said on Thursday. 

"Bank credit to euro area firms has become more expensive. Credit to firms has weakened further, owing to lower demand and tighter credit supply conditions. Household borrowing has become more expensive as well, especially owing to higher mortgage rate," she added.

Above: GBP/EUR shown at hourly intervals alongside EUR/USD. Click image for closer inspection.

While the Euro traded softly in the wake of the ECB decision, many financial market indices were trading higher ahead of the North American open on Thursday including those in Switzerland, France and Germany, albeit that banking and finance sector performances were chequered.   

Swiss share markets led the rebound in European stocks after the harried and seemingly hunted lender Credit Suisse said it would make use of a Swiss National Bank (SNB) it would swap regulatory capital assets for short-term liquidity at the Swiss National Bank.

The roughly $3 billion set of transactions follows an announcement from the SNB late on Wednesday notifying the market that it would support Credit Suisse and others with liquidity in the event of any circumstances where it's necessary following the speculative rout in the banking sector. 

Wednesday's rout in stock markets originated from the European banking sector but was ultimately a spillover effect of the funding pressures that snowballed into the failures of Silicon Valley Bank (SVB) and others at the weekend. 

That culminated in a successful federal intervention on Sunday that has since circumvented the prospect of panic spreading among depositors of other firms.

Above: Credit Suisse shares shown at hourly intervals alongside Commerzbank, Deutsche Bank, Natwest and Barclays. 

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