Pound Euro (GBP/EUR) Exchange Rate Softens Slightly after BoE Decision
(Updated 14:00, 5/8/21) The Pound Euro (GBP/EUR) exchange rate has retreated from one-week highs of €1.17616 following the Bank of England’s (BoE) interest rate decision announcement. It is still holding most of its daily gains, trading at €1.17481 at the time of writing.
The BoE’s outlook painted a mixed picture for GBP investors. In its summary, the BoE’s Monetary Policy Committee (MPC) said:
‘some modest tightening of monetary policy over the forecast period is likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term.’
On the one hand, the central bank signalled that it might tighten monetary policy sooner than expected. On the other, this tightening is likely to be ‘modest’, and the guidance was still very vague.
The BoE revised its inflation forecast higher, expecting inflation to hit 4% by the end of this year. However it still believes this to be a temporary rise as the UK recovers from the coronavirus pandemic.
As a result, the Pound is slightly down from its highs earlier today, though we might see more movement as markets digest the news.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Climbs in Run Up to BoE Policy Decision
The Pound Euro (GBP/EUR) exchange rate is firming today, as markets await the latest interest rate decision from the Bank of England (BoE).
EUR investors seem unwilling to place any aggressive bets against the Pound (GBP) in the run up to the BoE’s decision, despite some strong data from Germany earlier this morning.
Pound (GBP) Strengthens on BoE Expectations
The Pound is making gains against the Euro (EUR) today as GBP bulls hold out hope for more clarity on the BoE’s tapering plans.
While the central bank is expected to keep its interest rate and quantitative easing programme unchanged, some are expecting the BoE to publish more details on when and how it plans to tighten monetary policy.
The decision comes after the latest CPI showed that inflation jumped to 2.5% in June – a near three-year high and well above the 2.1% forecast. Meanwhile, the UK economy appears to be making a strong recovery and some experts believe we may be past the peak of the UK’s third covid wave.
The BoE seems split over the best path forward. Last month, two BoE policymakers suggested it may be appropriate to taper sooner than expected, while others urged patience.
This sets the scene for today’s decision. With GBP investors seemingly hopeful that the BoE will move a step closer to tightening monetary policy, Sterling is making gains.
Euro (EUR) Down despite Strong German Data
Meanwhile, the Euro has been on the defensive today, despite German factory orders surging in June.
New orders for German-made goods soared to 4.1%, more than double the expected 1.9%. The jump in orders shows a significant recovery from May’s 3.2% decline and was mostly driven by domestic demand following the easing of lockdown restrictions.
However, this positive report has failed to boost the Euro this morning, and the catalyst for EUR’s downside is unclear.
The single currency came under downward pressure yesterday after the US Dollar (USD) rebounded on an impressive services PMI from the US. The Euro slipped in response due to the negative correlation between USD and EUR.
A relative strength in USD this morning initially seemed to be weighing on the single currency. But EUR is now gaining on USD, which could potentially help the Euro stage a recovery against its rivals and recoup some losses against the Pound.
Pound Euro Exchange Rate Forecast: BoE Decision in the Spotlight
All eyes are on the BoE announcement at noon today. If the central bank strikes a hawkish tone or reveals plans for tightening monetary policy, the Pound Euro exchange rate could soar. Yet if the BoE fails to provide GBP investors with clarity, we could see the single currency make a comeback.