The Pound to Euro (GBP EUR) exchange rate plummeted over a cent this afternoon as the Bank of England (BoE) announced its latest rate decision.
Pound Exchange Rates Sink as BoE Rate Hike Looks Set to be One-Off
Pound Sterling (GBP) exchange rates were left in freefall this afternoon despite the BoE’s Monetary Policy Committee (MPC) voting for the first rate hike in over a decade.
Following its November policy meeting, the Bank announced today that it would be raising interest rates from 0.25% to 0.5%, a move that had been widely predicted by investors.
The decision reverses the rate cut made by the BoE last August in reaction to the UK’s vote to leave the EU in the Brexit referendum.
While a rate hike would normally be welcomed by investors, today’s move caused an immediate and sharp drop in Sterling.
It looks like the slump in sentiment was largely in reaction to the more dovish tone struck by the accompanying minutes, as they appeared to suggest that today’s hike would likely be a one off.
This will be a blow to some investors who were hopeful that a hike today may have been the start of a new cycle of monetary tightening.
The minutes from the meeting read; ‘The MPC now judges it appropriate to tighten modestly the stance of monetary policy in order to return inflation sustainably to target.’
‘All members agree that any future increases in Bank Rate will be at a gradual pace and to a limited extent.’
Investors were also disheartened by the Bank’s latest comments regarding the impact of Brexit, with BoE Governor, Mark Carney warning that ‘Brexit-related constraints’ were likely to pin back the UK’s growth prospects.
Euro (EUR) Strengthened as German Unemployment Holds at Record Low
Meanwhile the Euro was bolstered ahead of the BoE rate decision earlier this morning as Germany released its latest labour report.
According to data published by German statistics agency Destatis Germany’s jobless rate held at a record low of 5.6% in October as the number of unemployed fell by 11,000.
Labour agency head Detlef Scheele said; ‘The very good development in the labour market continues. Dynamic employment growth continues and company demand for new employees is increasing.’
The latest employment data also appears to support suggestions that Germany is heading towards its best growth performance in six years as rising employment helps to fuel domestic consumption and business optimism.
GBP/EUR Exchange Rate Forecast: UK Service Sector Activity to Slow?
Looking ahead to the remainder of the week, the GBP EUR exchange rate could see further losses on Friday with the publication of the UK’s latest services PMI.
With the service sector accounting for over 80% of UK economic growth, the Pound is likely to tumble if activity slows as some economists forecast in October.
However the Euro may also come under pressure tomorrow morning following a speech by the European Central Bank’s (ECB) Benoît Cœuré, with any comments regarding the bank’s decision to extend its bond purchases likely to weigh on the single currency.