Pound Euro Exchange Rate Soars to Two-Month High as BoE Warns of ‘Significantly Earlier’ Rate Hikes

Pound Euro Exchange Rate Bolstered by BoE Rate Hike Speculation

The Pound Euro (GBP/EUR) exchange rate is rallying this morning, with the pairing climbing to a new two-month high amidst rising expectations the Bank of England (BoE) will hike interest rates in the near-term.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1801, up roughly 0.3% from this morning’s opening rate.

Pound (GBP) Rallies on Hawkish BoE Saunders Comments

The Pound (GBP) is off to a roaring start this week, on the back of some hawkish comments made by Bank of England policymaker Michael Saunders over the weekend.

Speaking to the Telegraph, Saunders warned that households should brace for the BoE to start raising interest rates ‘significantly earlier’ than previously thought.

Saunders, said:

‘I’m not in favour of using code words or stating our intentions in advance of the meeting too precisely. The decisions get taken at the proper time. But markets have priced in over the last few months an earlier rise in Bank rate than previously and I think that’s appropriate.’

GBP investors began to price in a potential March rate hike from the BoE, following its September policy meeting. In which the bank warned that domestic inflation is set to rise above 4% and it may need to ‘moderately’ tighten its monetary policy to keep it under control.

The BoE rate hike speculation has helped to offset ongoing concerns over the UK’s economic resilience, as the country’s supply chain crisis weighs on business and consumer confidence.

Euro (EUR) Muted amid Gloomy Outlook

At the same time, the Euro (EUR) is struggling to attract support so far this morning as EUR investors also express concern over the outlook for the Eurozone economic recovery.

This comes as European energy prices look to soar over the winter following a surge in gas prices over the past year.

This is likely to feed into heightened inflationary pressure over the next six months, which could depress consumer spending.

While the UK faces similar challenges, EUR investors are concerned by the European Central Bank’s (ECB) reluctance to start tightening its monetary policy.

Pound Euro Exchange Rate Forecast: Drop in Unemployment to Extend Sterling’s Bullish Run?

Looking ahead, the Pound Euro (GBP/EUR) exchange rate may maintain its positive trajectory on Tuesday, following the publication of the UK’s latest labour report.

Economists are forecasting August’s job’s figures will show that domestic unemployment dropped to a one-year low, which alongside another robust wage growth print could reinforce expectations the BoE will be willing to start hiking interest rates in the near-term.

Meanwhile, the Euro could face an uphill battle tomorrow, with the publication of the German ZEW economic sentiment index.

This is expected to report that economic sentiment in the Eurozone’s largest economy continued to weaken this month, likely undermine the appeal of the single currency.