Pound Euro Exchange Rate Strikes Three-Week Low as BoE Rate Cut Speculation Mounts

GBP/EUR Exchange Rate Undermined amidst Rising BoE Rate Cut Odds

The Pound to Euro (GBP/EUR) exchange rate continues to tick lower this morning, in response to growing speculation the Bank of England (BoE) may cut interest rates this month.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1651, just above the three-week low struck earlier this morning.

Pound (GBP) Pressured by BoE Speculation

The Pound (GBP) remains in the doldrums this morning as traders start to price in a possible rate cut from the Bank of England this month.

The odds of a January rate cut were roughly 5% at the start of 2020, but have now rocketed to around 50% in light of an underwhelming GDP report and some dovish comments from BoE policymakers.

The Office for National Statistics (ONS) reported on Monday that UK GDP unexpectedly shrank by 0.3% in November.

This turbo charged speculation of an imminent rate cut from the BoE as it comes hot on the heels of comments from BoE Governor Mark Carney last week, in which he warned persistent weak growth would warrant a ‘prompt’ response from the bank.

Matthew Cady, investment strategist at Brooks Macdonald, suggests:

‘UK GDP for November has come in at negative -0.3%. This is quite a bit weaker than had been expected. Consensus had been looking for zero growth month on month. Against this, both September and October were revised up by 0.2% and 0.1% points respectively.

‘The weaker GDP print today puts beyond doubt that the next Bank of England meeting at the end of January is going to be a ‘live’ meeting.’

Euro (ECB) Steady Following Optimistic ECB Comments

At the same time, the Euro (EUR) is enjoying some modest support this morning in the wake of comments from European Central Bank (ECB) Governing Council member Yves Mersch.

Speaking in Frankfurt, Mersch struck an upbeat tone, suggesting the Eurozone economy and inflation are showing signs of stabilising.

Mersch credited the ECB’s accommodative policies for helping to prevent the Eurozone’s recent slowdown from propping up growth.

Analysts generally remain less upbeat however, with many forecasting that the Euro region is likely to continue to experience a period of weak growth for some time to come.

GBP/EUR Exchange Rate Forecast: Muted UK Inflation to Increase the Odds of a BoE Rate Cut?

Looking ahead, the Pound to Euro (GBP/EUR) exchange rate looks set to face some headwinds in the mid-week with the publication of the UK’s consumer price index.

Analysts are predicting inflation will have continued to stall December, holding at 1.5%, its lowest level since November 2016.

The muted inflation reading is likely to weigh heavily on Sterling as it puts more pressure on the BoE to pursue a rate cut in the near-term.

At the same time, the Euro may stumble out of the gate tomorrow, with the publication of Germany’s full year GDP figures.

Economists forecast Germany’s economy will have only grown 0.6% in 2019, down from 1.5% in 2018, stoking concerns about how the slowdown of Europe’s powerhouse economy may have impacted the wider Eurozone.

Matthew Andrews

Contact Matthew Andrews