The Pound to Euro exchange rate is trading at a one-month high due to Bank of England speculation.
GBP/EUR Rises as ECB Prolongs QE
Last week saw Sterling appreciate by around 150 pips against the single currency, with the pairing helped by news that the UK economy grew by 0.4% in the third quarter – beating expectations of 0.3%.
GBP/EUR also received a boost following an announcement from the European Central Bank suggesting that Eurozone quantitative easing would continue well past September 2018. ECB President Mario Draghi announced that the monthly asset purchasing target would be halved from €60 billion to €30 billion in January, but was keen to stress that the programme was not being ‘tapered’. By suggesting that QE would be prolonged, the ECB reduced the appeal of the Euro.
Brexit Hopes Bolster Sterling
So far, the Pound has continued to appreciate versus the single currency this week. Although Eurozone GDP beat expectations of 0.5%, with a strong third quarter print of 0.6%, the single currency suffered as inflation in the currency bloc slipped unexpectedly from 1.5% to 1.4%.
The Pound was also able to post gains versus the Euro following news that EU chief negotiator Michel Barnier is ready to speed up Brexit talks.
Sterling Supported by Bank of England Rate Hike Bets
Pound exchange rates have been lifted by mounting bets that the Bank of England will raise interest rates for the first time in a decade on Thursday. Sterling could push higher if the expected 25 basis point rate rise becomes a reality, but the follow through could be limited if BoE Governor Mark Carney does not hint at future tightening.
Indeed, if BoE officials express a desire to hike once and stay put it could actually lead to a selloff in Sterling as traders lock-in profit from the recent rally. If the BoE were to disappoint markets by leaving rates on hold, the consequences could be severe for the Pound.