Pound Euro Exchange Rate Slides as BoE Governor Dismisses Rising Inflation

Bank of England Governor’s Inflation Comments Drag Down Pound Euro Exchange Rate

The Pound to Euro (GBP/EUR) exchange rate remained on the back foot in the wake of comments from Bank of England (BoE) Governor Andrew Bailey.

As Bailey indicted that higher inflation is unlikely to persist for long, adding to the odds of the central bank keeping interest rates on hold for longer.

With the BoE looking set to maintain a dovish policy outlook for the foreseeable future investors saw little reason to favour Pound Sterling (GBP) at this stage.

Even with the UK economy set to reopen further next week with the next phase of easing in lockdown conditions this was not enough to keep GBP exchange rates from shedding ground.

Euro Vulnerable to Dovish European Central Bank Meeting Minutes

Support for the Euro (EUR) could weaken today with the release of the European Central Bank’s (ECB) most recent set of meeting minutes.

Markets expect to see another set of dovish minutes, highlighting the central bank’s willingness to leave monetary policy unchanged for longer.

If policymakers fail to express any greater confidence in the economic outlook this could see the Euro trending lower across the board heading into the weekend.

On the other hand, investors may shrug off any dovish comments if they remain unconvinced about the possibility of any potential monetary policy loosening to come.

Underwhelming UK Labour Market Data Set to Weigh on Pound Exchange Rates

Greater weakness could be in store for the GBP/EUR exchange rate next week if March’s UK labour market data fails to impress.

With forecasts pointing towards an uptick in the headline unemployment rate the mood towards the Pound looks set to sour further.

Evidence of rising unemployment could cast some doubt over the underlying resilience of the UK economy, particularly if the latest average earnings figures also disappoint.

As long as the labour market ends the first quarter on a weaker footing the potential for Pound gains could prove limited, even with the economy already looking on track to recover momentum in the second quarter.

Second Estimate of Eurozone GDP Forecast to Limit Euro Appeal

Demand for the Euro, meanwhile, could weaken if the second estimate of the first quarter Eurozone gross domestic product disappoints.

Any downward revision to the growth rate could see EUR exchange rates trending sharply lower across the board next week.

On the other hand, if the quarterly growth contraction proves less sharp than initially forecast this could help to put a floor under the single currency.

A widened Eurozone trade surplus figure may also offer a boost to the Euro on Tuesday, leaving the Pound to Euro exchange rate vulnerable to fresh losses.

Louisa Heath

Contact Louisa Heath