GBP/EUR Exchange Rate Strengthened by BoE Stimulus Speculation
The Pound to Euro (GBP/EUR) exchange rate is ticking higher this morning after the Bank of England (BoE) dropped hints that it could expand its stimulus programme.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1454, up roughly 0.3% from this morning’s opening levels.
Pound (GBP) Strengthens as BoE Contemplates QE Expansion
The Pound (GBP) has made some tentative gains this morning in the wake of the Bank of England’s latest policy meeting.
As expected, the BoE voted to keep interest rates on hold this month, having slashed them to a record low of 0.1% back in March.
— Bank of England (@bankofengland) May 7, 2020
WHile the BoE also left its stimulus programme untouched this month, two members of the Monetary Policy Committee broke ranks in voting for an immediate increase to the bank’s bond purchases.
Alongside BoE Governor, Andrew Bailey’s statement that that the bank stands ready to do more, it would suggest that an expansion of the BoE’s quantitative easing programme is only a matter of time.
Oliver Blackbourn, multi-asset portfolio manager at Janus Henderson Investors, suggests:
‘While the Bank of England did not change its monetary policy stance at today’s meeting, it is surely only a matter of time before they decide to. The 7-2 split on whether to increase asset purchases indicates a continued dovish bias from certain voting members.’
This was welcomed by GBP investors as an increase to the bank’s bond purchases is likely to support government spending and help the UK economy to mount a quick recovery.
However, tempering Sterling’s gains were the BoE’s accompanying forecasts, which saw the BoE warn that the UK faces its deepest recession in history, with the economy poised to contract as much as 14% in 2020.
Euro (EUR) Dented by Abysmal German Industrial Production
At the same time, the Euro (EUR) has had its nose bloodied this morning by the publication of Germany’s latest industrial data.
According to data published by Germany’s federal statistics agency, Destatis, domestic industrial production plunged from 0.3% to –9.2% in March, the steepest decline in factory output since Germany’s reunification.
This was unsurprisingly attributed to the coronavirus crisis and the implementation of Germany’s lockdown measures.
Carsten Brzeski, Chief Economist at ING Germany, commented:
‘German industrial production followed all other German macro indicators and dropped like a stone in March. Industrial production fell by 9.2% month-on-month, from 0.3% MoM in February. Almost needless to say that this was the sharpest monthly drop ever.
‘Today’s data illustrates how an open economy like Germany has been hit severely by the lockdown measures both at home and abroad.’
GBP/EUR Exchange Rate Forecast: UK GDP Figures in Spotlight
Looking ahead, in absence of any notable data on Friday, markets will begin to turn their attention next week’s releases.
Of particular note for investors will be the publication of the UK’s first quarter GDP estimate on Tuesday.
This could see the Pound to Euro (GBP/EUR) exchange rate come under some heavy pressure as economists forecast UK economic growth will have fallen off a cliff at the start of the year as the UK’s coronavirus lockdown came into effect.
Meanwhile, EUR investors will be focused on Germany’s own GDP release, with the Euro likely to face some headwinds in the latter half of the week as Europe’s largest economy also faces a sharp contraction in growth in the first quarter.