GBP/EUR Exchange Rate Falls Ahead of BoE Interest Rate Decision
The Pound to Euro exchange rate dipped this morning, with the pairing currently fluctuating around €1.13.
Sterling fell against the single currency today ahead of the Bank of England’s (BoE) interest rate decision, which is expected to hold at 0.1%.
However, growing speculation over possible negative interest rates has dragged on UK market mood.
Economists at the Bank of America commented:
‘Following surging UK Covid cases and a new lockdown, more stimulus would be a reasonable response we think. But BoE speakers have suggested no inclination for extra stimulus now, preferring to debate negative interest rates.’
As a result, GBP investors are worried that the BoE could hint at negative interest rates, which would mean that the central bank has become more dovish about the outlook for the UK economy.
George Buckley, the Chief UK and European economist at Nomura, explains:
‘We expect the Bank to go further and announce that, based on this review, negative rates can now be used if required, but at the same time admitting that deploying this tool is not without its risks.’
Euro Edges Higher Despite Criticism of Europe’s Slow Covid-19 Vaccine Rollout
The Euro rose against the Pound today despite the European Union (EU) coming under heavy criticism for Europe’s slow Covid-19 vaccine rollout.
Stefan Lehne, of the Carnegie Europe thinktank, commented:
‘Acting together was the right choice for the EU, although avoidable mistakes were made. Rather than engaging in a blame game, the EU, member states and pharmaceutical companies now need to work together to ramp up production as rapidly as possible.’
Meanwhile, concerns are growing over the Eurozone’s economy, which increasingly looks like it’s on course for a double-dip recession.
The gloomy outlook for the bloc was tempered somewhat by the relatively weak dip in the fourth quarter. Data revealed that the outlook for the Eurozone was less severe than previously thought.
Last year saw the Eurozone’s GDP fall by -11.4 in the second quarter, before a 12.4% increase in the third quarter.
However, Christoph Weil, economist at Commerzbank, said:
‘In the first quarter of 2021, the decline is likely to be somewhat steeper. However, there will not be a slump like the one in the first half of 2020. Instead, a noticeable recovery is likely to set in again from the spring.’
As a result, EUR investors have become cautiously optimistic that the Eurozone’s Covid-19 vaccine rollout could help the bloc recover its economy in the months ahead.
Could Stronger-Than-Expected German Factory Data Boost the Euro?
Pound traders will be looking ahead to tomorrow’s speech from the Bank of England’s (BoE) Governor, Andrew Bailey.
Any dovish remarks about the British economy, or any hints at negative interest rates in the future, would be GBP-negative.
In UK economic data, tomorrow wills see the release of the latest Halifax House Prices data. If this shows a dim outlook for the housing market, then we could see Sterling suffer.
Euro traders will be eyeing tomorrow’s release of Germany’s Factory Orders data for December. Any improvement in the Eurozone’s largest economy’s factory and manufacturing sector would be EUR-positive.
The GBP/EUR exchange rate will be driven by the UK’s Covid-19 infection rate and vaccine rollouts.
If cases continue to fall and the number of those vaccinated continues to rise, then the Pound would benefit.