Update: GBP/EUR Exchange Rate Pushes Higher as BoE Spilt on Interest Rates
While unsurprisingly the bank kept rates on hold this month, reports that two policymakers broke ranks and voted for a hike initially sent the GBP exchange rate soaring.
On top of this the bank’s policy statement alluded to the need for ‘ongoing tightening’, furthering lifting Sterling sentiment as it suggested to many that a May rate hike was likely on the cards.
However the Pound failed to stabilise at its best levels, with the GBP/EUR exchange rate slipping back as some investors felt the pairing had been overbought in the run up to the rate decision.
GBP/EUR Exchange Rate Poised to Rise if BoE Strikes a Hawkish Tone over Interest Rates
The Pound to Euro (GBP/EUR) exchange rate looks set to advance in today’s session as investors eagerly await the Bank of England’s (BoE) latest interest rate decision.
At the time of writing GBP/EUR is edging higher this morning, with the pairing having struck a new ten-month high in the build up to the BoE’s policy statement.
Interest Rate Speculation Helps to Strengthen Pound (GBP)
The Pound is edging higher against the Euro this morning in advance on what investors hope will be a hawkish outlook from the BoE at the conclusion of its latest policy meeting.
No policy changes are expected from the bank in following this month’s rate decision, but current market speculation suggests that a rate hike may be imminent.
The speculation heated up even further this week in the wake of some stronger-than-expected wage figures from the UK, with analysts suggesting this makes a strong case for the BoE to consider a hike as early as May.
Konstantinos Anthis, head of research at ADS Securities said:
‘Inflation rebounded higher last month, we noted good wage growth in yesterday’s employment report and there has even been progress in the Brexit negotiations.’
‘All these factors paint a positive outlook for the Pound and shape expectations for a bullish BoE message which will underpin investors’ hopes for a rate hike soon.’
Euro (EUR) Undermined by Slowing Private Sector Activity
At the same time the Euro was placed on the back foot this morning following the release of the Eurozone’s latest PMI figures.
According to data published by IHS Markit, activity in the bloc’s private sector continued to slow this month, with March’s composite PMI reading slumping from 57.1 to 55.3.
This was a far larger moderation in growth than had been forecast and saw the index fall to its lowest level since January 2017.
While the figures indicate the Eurozone continues to show healthy growth, the slowdown further suggests that last year’s robust rate of expansion may be coming to an end.
This was something that was not lost on currency markets, with the Euro sell-off helping to drive the GBP/EUR exchange rate to a new ten-month high.
Chris Williamson, Chief Business Economist at IHS Markit said:
‘While the first quarter average PMI reading remains relatively robust, indicative of GDP rising by 0.7 – 0.8%, the loss of momentum since the buoyant start to the year has been quite dramatic.’
GBP/EUR Exchange Rate Forecast: EU Summit to Undermine BoE Driven Gains?
The BoE’s rate decision won’t be the only event in focus for investors today, with movement in the GBP/EUR exchange rate also likely to be driven by Brexit sentiment as the latest EU summit gets underway.
The two-day summit will be a major test for Theresa May as she seeks to finalise a transition agreement with the EU, whilst also lobbying for the EU to allow trade talks to finally get underway.
The Pound is likely to face heavy losses on the resulting uncertainty, should she fail to secure either of these things.