GBP/EUR Retreats as BoE Offers Limited Forward Guidance

GBP/EUR Exchange Rate Softens Following BoE Policy Decision

Update: The Pound Sterling to Euro (GBP/EUR) exchange rate has fallen back this afternoon as markets digest the Bank of England’s latest policy decision.

With the BoE leaving its monetary policy unchanged as expected this month, GBP investors were hoping that the bank would offer a stronger signal on whether it would target a rate hike later this year.

When such a signal failed to materialise markets were left disappointed, with Sterling sentiment coming under further pressure as the BoE slashed its growth forecast for the second quarter.

GBP/EUR Exchange Rate Holds at One-Week High

The Pound Sterling to Euro (GBP/EUR) exchange rate is currency trading at a one-week high, with the pairing consolidating its recent gains ahead of the Bank of England’s rate decision later this afternoon.

At the time of writing GBP/EUR is trading at around €1.1262, leaving the pairing virtually unchanged from this morning’s opening rate.

Pound (GBP) Muted as Retail Sales Contract

While the focus for GBP investors today is undoubtedly on the Bank of England, also keeping a cap on the Pound (GBP) this morning is the publication of the UK’s latest retail sales figures.

According to data published by the Office for National Statistics (ONS), sale growth slumped -0.5% as expected in May, with April’s figures being revised down to reveal a -0.1% contraction.

The fall was attributed to a sharp decline in clothing sales as unseasonably cold weather in May saw most consumers delay their summer purchases.

Analysts forecast the slump adds to evidence that the UK economy is struggling in the second quarter, a possibility that is limiting the appeal of Sterling this morning.

Euro (EUR) Subdued on Gloomy ECB Bulletin

At the same time, the Euro (EUR) is struggling to find momentum this morning, following the publication of the European Central Bank’s (ECB) latest economic bulletin.

Unsurprisingly the bulletin was mostly gloomy in tone, with warnings on slowing growth momentum in the Eurozone and deteriorating global financial conditions weakening the appeal of the single currency.

This comes in the wake of comments made by Mario Draghi earlier in the week in which the ECB President signalled that the bank is considering introducing further stimulus, opening the door to fresh quantitative easing and perhaps even making a rate cut by the end of 2019.

GBP/EUR Exchange Rate Forecast: Will a Hawkish BoE Boost Sterling?

Looking ahead, markets won’t have long to digest the UK’s retail sales today as the Bank of England (BoE) delivers its June policy decision later this afternoon.

While no policy changes are expected this month, the bank’s forward guidance could be a possible market mover.

We may see the Pound Euro (GBP/EUR) exchange rate accelerate if the BoE signals that it remains open to raising interest rates in the future, with BoE Governor Mark Carney having previously warned that rates would rise at a faster pace than currently priced in by markets.

Meanwhile the focus for EUR investors is likely to be on the very end of the week and the publication of the Eurozone’s latest PMI figures.

With economists forecasting another lacklustre performance from the bloc’s private sector this month, it’s likely we will see the Euro extend its losses this week as it puts more pressure on the ECB to lower rates.

Matthew Andrews

Contact Matthew Andrews