Pound Euro Exchange Rate Edges Higher as Markets Digest Hawkish BoE

The Pound Euro (GBP/EUR) exchange rate has edged higher since markets opened this morning as Sterling continues to find support from the hawkish tone the Bank of England (BoE) choose to take at its latest policy meeting yesterday afternoon.

At the time of writing the GBP/EUR pairing are trending around the 1.1776 level as the Euro find itself undermined by an unexpected fall in German industrial production this morning.

Pound (GBP) Holds onto Thursday’s BoE Gains

The Pound (GBP) has been able to hold onto many of its gains from yesterday’s interest rate decision from the BoE during yesterday’s session.

Whilst the bank kept interest rates at 0.1% and choose not to make any policy changes, at the subsequent press conference the BoE chose to take a more hawkish stance moving forward:

‘The committee judges that, should the economy evolve broadly in line with the central projections in the August Monetary Policy Report, 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.’

In regard to the ‘modest tightening’ comment, investors headed towards Sterling as economists had their own say on the policy meeting.

Kallum Pickering, senior economist at Berenberg commented on the decision, saying:

‘The hawkish turn in today’s monetary policy report shows that BoE policymakers are a) becoming increasingly confident in the durability of the recovery and b) more concerned about medium-term inflation risks.’

Sterling continues to find support from ongoing positive domestic coronavirus developments as fully vaccinated people are found three times less likely to get Covid-19 – a study has found in the UK.

Euro (EUR) Stumbles on Disappointing German Industrial Production Data

The Euro (EUR) has stumbled against the Pound this morning on the back of an unexpected fall in German industrial production figures.

Whilst a modest uptick of 0.5% in industrial production in the Eurozone’s largest economy had been expected, a downturn of -1.3% has left investors concerned over the state of Germany’s economic recovery.

Andrew Kenningham, chief Europe economist at Capital Economics commented on the latest figures, saying:

‘Media reports suggest that auto manufacturers themselves think the component shortages are likely to continue into next year although they expect (or hope) the problems will be less severe. So a full recovery for Germany remains some way off.’

Pound Euro Exchange Rate Outlook: German Inflation in Focus

Heading into next week, the latest inflation rate figures from Germany will be eyed by investors to drive movement in the single currency.

If inflation rises to 3.8% as forecast, then EUR exchange rates could see themselves pushing higher.

Pound traders will have to look towards the second half of the week to see any notable economic data from the UK.

Instead, any coronavirus developments from the UK could be the main catalyst for movement in Sterling for much of the week.

Georgina Clissold

Contact Georgina Clissold