GBP/EUR Exchange Rate Retreats on Dovish BoE
Updated: The Pound to Euro (GBP/EUR) exchange rate fell sharply this afternoon in response to the Bank of England’s latest rate decision.
While the BoE keep rates on hold again this month, the news that two policymakers broke ranks to vote for a rate cut spooked some GBP investors.
— Bloomberg Brexit (@Brexit) November 7, 2019
Exerting further pressure on Sterling was a change in the bank’s forward guidance, with policymakers hinting a rate cut could be on the cards if Brexit uncertainty persists.
On top of this was the BoE’s accompanying Monetary Policy Report, in which it downgraded its growth forecasts to predict GDP will be 1% lower over the next three years.
GBP/EUR Exchange Rate Muted on BoE Rate Decision
The Pound to Euro (GBP/EUR) exchange rate is trading sideways this morning, as the Bank of England (BoE) prepares to deliver its latest rate decision.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1608, virtually unchanged from today’s opening rate.
Downbeat BoE Rate Decision Set to Weigh on the Pound (GBP)
The Pound (GBP) is likely to face some pressure today as the Bank of England concludes its November policy meeting.
In light of the continued uncertainty surrounding Brexit and a looming general election, it’s extremely unlikely that the BoE rate decision will include any policy changes this month.
Instead the focus for GBP investors will be on the central bank’s Monetary Report, with a gloomier outlook from the bank likely to drag on Sterling.
The Bank of England will probably keep interest rates on hold and cut its growth and inflation forecasts on Thursday https://t.co/wRVvBDrEKk
— Bloomberg (@business) November 7, 2019
Economists expect that BoE Governor Mark Carney will acknowledge that the global and domestic outlook continues to deteriorate.
This is likely to increase speculation that a future BoE rate decision will see a rate cut rather than a hike, contrary to the BoE’s current policy line that interest rates could move either direction after Brexit.
Euro (EUR) Side-lined by German Recession Fears
The Euro (EUR) is also struggling to find momentum this morning following the publication of Germany’s industrial production figures.
According to data published by Germany’s federal statistics agency, Destatis, domestic factory output slumped from 0.4% to -0.6% in September.
— Destatis news (@destatis_news) November 7, 2019
This was worse than the 0.4% contraction that had been forecast and undermined yesterday’s upbeat factory orders figures.
Carsten Brzeski, chief economist at ING Germany commented:
‘Yesterday, new orders rebounded after two consecutive drops, adding to hopes that the manufacturing sector and with it, the entire economy could finally end the free fall which started in the summer of 2018. However, today’s industrial production data shows that any optimism on the outlook for German industry is premature.’
It now looks almost inevitable that Germany slipped into a technical recession this year, with next week’s GDP estimate set to confirm markets’ worst fears.
GBP/EUR Exchange Rate Forecast: British Politics Dominate
Looking ahead, UK politics will act as the main catalyst for movement in the Pound to Euro (GBP/EUR) exchange rate going forward.
The next five weeks are sure to be full of various twists and turns as UK parties hit the campaign trail ahead of the general election on 12th December.
As a result we can expect to see political uncertainty infuse some greater volatility into Sterling.
In the meantime, the Euro may face some pressure on Friday if Germany’s trade figures reveal exports slumped again in September.