Pound Euro Exchange Rate Steady ahead of BoE Bailey Speech

Pound Euro Exchange Rate Stable as Bailey Speech in the Spotlight

The Pound Euro (GBP/EUR) exchange rate is currently trading with modest gains, as investors brace for a speech by Bank of England (BoE) Governor, Andrew Bailey later this afternoon.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1849, up roughly 0.2% from this morning’s opening rate.

Hawkish Bailey Speech to Boost the Pound (GBP)?

The Pound (GBP) has been underpinned over the past week and a half by rising speculation that the Bank of England might begin hiking interest rates earlier than previously forecast.

This comes in the wake of some hawkish commentary from members of the BoE’s Monetary Policy Committee (MPC), in which they have expressed concern over the recent spike in UK inflation and hinted that the bank may need to act to limit the risk it poses to the economic recovery.

In the wake of comments from BoE Governor Andrew Bailey over the weekend, GBP investors have begun to price in the possibility of the bank hiking interest rates as soon as November.

However some analysts have warned that investors may have gotten carried away in predicting that this could be the first of several rate hikes from the bank over the next year.

James Smith, Developed Markets Economist at ING, comments:

‘It’s a close call between a November and February move, but we suggest the former is more consistent with the Governor’s latest hints.

‘Still, we don’t share the markets’ conviction that this will be followed by a series of rate hikes. More likely, the most we’ll see next year is a further 25bp hike, taking the Bank rate to 0.5%, followed by the start of balance sheet reduction.’

With this in mind, GBP investors will be paying close attention to a scheduled speech by Bailey later this afternoon, as they look for more clarity on whether or not we might be entering a new tightening cycle.

Euro (EUR) Muted as ECB Continues to Dismiss Inflation Concerns

At the same time, the Euro (EUR) is struggling to attract support this morning as European Central Bank (ECB) policymakers continue to play down concerns over rising inflationary pressure in the Eurozone.

Speaking this morning ECB Governing Council Member Olli Rehn, insisted that the recent spike in inflation is ‘still mostly transitory’.

Whilst he admitted that the surge in inflation is more persistent that previously thought and that it could start to have a ‘more significant effect on inflation expectations’, his suggestion that the ‘ECB leans on side of not overreacting’ appeared to indicate the bank will not be following the other major central bank in considering tightening monetary policy in order to curb inflation pressure.

Pound Euro Exchange Rate Forecast: UK Inflation Centre Stage

Looking past Bailey’s speech later this afternoon, the main catalyst of movement in the Pound Euro (GBP/EUR) exchange rate looks to be the publication of the UK’s consumer price index on Wednesday.

Given the BoE appears to be primarily concerned by the recent rise in inflationary pressure in the UK, September’s CPI figures could result in some notable movement, with Sterling potentially soaring if domestic inflation continued to accelerate as this is likely to bolster the odds of the BoE hiking interest rates this year.

In the meantime, the Eurozone’s own CPI figures are expected to confirm that inflation in the bloc soared to its highest levels since 2008, but in light of the ECB’s dovish bias this is unlikely to provide much support to the Euro.

Matthew Andrews

Contact Matthew Andrews