Pound Euro (GBP/EUR) Exchange Rate Soars on BoE Hawkishness and High Risk Appetite

GBP/EUR Exchange Rate Spikes as Pound Enjoys Multiple Tailwinds

(Updated 17:00, 15/10/2021) The Pound (GBP) is trending up against its peers this afternoon as investors trade with bullish confidence amidst hawkish signals from the Bank of England (BoE).

Escalating energy costs have boosted consumer prices to levels well beyond the BoE’s target for price stability, with imminent action from BoE policymakers seeming more and more likely in the coming weeks.

Additionally, a persistent risk-on mood has supported Sterling through the day. Upbeat quarterly earnings in the financial sector triggered advances on the world’s major stock indexes, easing concerns about inflation and supply chain bottlenecks.

A lack of further news regarding the Chinese real-estate sector also calmed market mood, as multiple property developers have admitted to financial difficulties recently in the wake of the Evergrande crisis.

A lack of data in Europe subdued Euro (EUR) trading through the remainder of the session, with EUR investors remaining bearish on a dovish ECB.

Original article continues below:

Pound Euro Exchange Rate Jumps as Lagarde Strikes Dovish Tone

The Pound Euro (GBP/EUR) exchange rate is trending up this morning as Euro (EUR) trading is subdued by dovish messaging from the European Central Bank (ECB). Meanwhile, the Pound (GBP) is supported by Bank of England (BoE) optimism and a risk-on market mood.

At the time of writing, GBP/EUR is trading at €1.1821, up 0.3% from today’s opening levels.

Euro (EUR) Trades Mixed on ECB Headwinds

The Euro has fallen against several of its peers this morning in the wake of dovish comments from ECB officials.

The central bank’s President Christine Lagarde gave a speech in yesterday’s session, warning that while the rebound in the Eurozone economy was increasingly advanced, it was ‘crucial that policy support was not withdrawn prematurely’. She also reiterated that the bloc’s inflation upswing is viewed as being driven by temporary factors.

Lagarde’s sentiments were echoed this morning by policymaker Pierre Wunsch, who remarked that ‘the economy is on the right path’, and ‘we are not at our inflation goal just yet.’

While there are some whose views differ – Dutch Governor Klaas Knot suggested that inflation may prove more persistent than expected – markets remain unconvinced that the ECB will change its overall dovish stance anytime soon.

Otherwise, US Dollar (USD) downside caps losses in the single currency as US Treasury bond yields fall. USD support wavers ahead of this afternoon’s retail sales data, lending upside to the Euro as a result of the strong negative correlation between the two currencies.

Pound (GBP) Finds Support on BoE Optimism, Supply Chain Reassurances

The Pound is climbing against the majority of its peers as general optimism over the Bank of England’s hawkish policy stance buoys trading sentiment, alongside reassurances from Transport Minister Grant Shapps.

BoE policymakers have fuelled speculation that the central bank may hike interest rates by the end of 2021, with Governor Andrew Bailey commenting last week that he was concerned about inflation running above the bank’s 2% target; another MPC member, Michael Saunders, also remarked that it was appropriate for financial markets to focus on a rate rise before Christmas.

Recent dovish comments from former London School of Economics professor Silvana Tenreyro and fellow MPC member Catherine Mann have seemingly failed to dampen trading sentiment, despite warnings that an early rate hike could be ‘self-defeating’ if inflationary pressures turn out to be temporary.

Tenreyro said that large increases in the global price of energy and other commodities were pushing up inflation, but that these effects tend to be short-lived:

‘The prices go up, but they don’t keep going up sustainably, so you have a one-off price effect and in that sense inflation should be transitory.’

In other news, Transport Minister Grant Shapps has told reporters that stocks will be sufficient for Christmas shopping, as ‘things are flowing’ at UK ports. Shapps’ reassurances follow widespread concern over cargo ships being turned away at Felixstowe.

GBP/EUR Exchange Rate Forecast: Pound to Face Resistance on NI Talks?

A lack of data through today’s session means the Pound Euro exchange rate is likely to find direction on risk sentiment and external factors. As Brexit minister Lord Frost proceeds with talks over the Northern Ireland protocol, any tensions between the UK and EU officials may inspire bearish trading.

Next week’s inflation rate decision from the Bank of England is likely to drive further movement, potentially inspiring further interest rate discussions amongst BoE policymakers.

Olivia Evershed

Contact Olivia Evershed