Pound Sterling Rises Against Euro as ECB Speakers Push April Rate Cut

Above: File image. Francois Villeroy de Galhau, Governor Banque de France, Image: Deutsche Bundesbank, Nils Thies.

The Pound to Euro exchange rate extended gains to 1.1727 after members of the European Central Bank's Governing Council (GC) raised the prospect of an April rate cut.

"It seems very probable that there will be a first rate cut in the spring," said François Villeroy de Galhau, GC member and Governor of the Bank of France. "Spring goes from April until June 21."

"Well, April just got ruled in a bit more," says Viraj Patel, a strategist at Vanda Research.

The Euro was steady after the ECB's March decision, where it left interest rates unchanged but lowered its inflation forecasts to show it would comfortably meet the 2.0% target on the forecast horizon.

ECB President Lagarde's post-decision press conference made clear June was the preferred date of the first cut, which limited Euro weakness.

However, de Galhau's comments and those of Bundesbank President Joachim Nagel suggest the GC could well cut in April.

"The probability is increasing that we could see an interest-rate cut before the summer break," said Nagel. "This will be data dependent, but the prospects have brightened."

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These comments raise the prospect of the ECB cutting ahead of the Bank of England and U.S. Federal Reserve, which will potentially keep the Euro under pressure against the Pound and Dollar.

"The Governing Council are out in force today trying to keep the odds of an April move alive - both Nagel and Villeroy have sounded dovish this morning, contrasting with Lagarde's emphasis on the need for May's data," says Simon Harvey, Head of FX Analysis at Monex.

On Thursday, the ECB kept interest rates and official communications unchanged but released new economic projections that included cuts to previous inflation forecasts.

There was a "dovish shift in the staff projections," says Claus Vistesen, an economist at Pantheon Macroeconomics. "They're basically reaching target, so why not cut now?"

Cuts to the inflation forecasts mainly reflect a lower contribution from energy prices, said the ECB. It now projects inflation to average 2.3% in 2024, 2.0% in 2025 and 1.9% in 2026. The projections for core inflation (excluding energy and food) have also been revised down and average 2.6% for 2024, 2.1% for 2025 and 2.0% for 2026.

"With inflation more likely to fall back to target and economic growth in the euro-zone expected to remain well below potential this year at 0.6%, it is becoming harder for the ECB to justify maintaining the current restrictive monetary policy stance," says Lee Hardman, an analyst at MUFG Ltd.