Pound Euro (GBP/EUR) Exchange Rate Holds at Key Level Ahead of BoE Rate Decision

GBP/EUR Exchange Rate Muted as BoE in Focus

The Pound to Euro (GBP/EUR) exchange rate is currently holding in a narrow range next to a key barrier of resistance as markets await the Bank of England’s (BoE) latest rate decision.

At the time of writing the GBP/EUR exchange rate is trading at around €1.0975, virtually unchanged from this morning’s opening rate.

Pound (GBP) Steady Ahead of BoE Rate Decision

The Pound (GBP) is in a holding pattern this morning, as traders wait for the Bank of England (BoE) to deliver its latest rate decision later this afternoon.

While no policy changes are expected from the BoE this month, GBP investors will be eager for the bank’s latest take on the economy, as the UK faces the possibility of a second wave of coronavirus infections, a no-deal Brexit and a prolonged period of low inflation.

Investors are particularly interested to see how the latest Brexit developments could alter the BoE’s outlook, with analysts predicting it could prompt the bank to introduce some more quantitative easing by the end of the year.

Jim Reid, Head of Global Fundamental Credit Strategy at Deutsche Bank, suggests:

‘Our base case is that there’ll be a further £60bn top-up to the QE program in December, though risks are rising that this might be announced slightly earlier at the November meeting. The meeting comes against the backdrop of rising Brexit uncertainty, which will only serve to heighten uncertainty and weaken confidence.

‘Brexit wasn’t mentioned once in the minutes of the August meeting, but it’ll be interesting to see if this changes…’

Another key focus will be the BoE’s language pertaining to unconventional monetary policy, with the Pound likely to face some pressure if the bank indicates it is putting some serious thought into the possibility of negative interest rates.

Euro (EUR) Muted Ahead of CPI Release

At the same time, the Euro (EUR) is on the back foot this morning as the Eurozone’s consumer price index is set to confirm the bloc slipped into a state of deflation last month.

This will be the first contraction of inflation since 2016, with the return of deflation pressure in the Eurozone likely to prove a major headache for the European Central Bank (ECB).

Also limiting the appeal of the single currency are ongoing concerns over Europe’s coronavirus resurgence as cases continue to rise across the continent.

GBP/EUR Exchange Rate Forecast: Slowing Retail Sales to Drag on Sterling?

Looking ahead, the Pound to Euro (GBP/EUR) exchange rate could face some headwinds at the end of this week’s session with the publication of the UK’s latest retail sales figures.

After surging in recent months due to pent up demand from the lockdown, economists are forecasting that sales growth will have begun to normalise in August.

This could weaken the appeal of Sterling as it suggests the trajectory of the UK’s economic recovery is likely to narrow in the coming months.

Meanwhile, scheduled speeches by a couple of ECB policymakers will be in focus for EUR investors tomorrow. Could they provide more insight into the ECB’s future policy plans?

Matthew Andrews

Contact Matthew Andrews