Pound Euro Exchange Rate Refreshes 21-Month High on BoE Rate Hike Speculation

Pound Euro Exchange Rate Resumes Climb Following Brief Setback  

(Updated 14:50, 17/11/21) The Pound Euro (GBP/EUR) exchange rate is back on the advance this afternoon, with the pairing climbing to its highest-level since March 2020. 

This upswing in the GBP/EUR exchange rate is being underpinned by expectations that the Bank of England (BoE) will hike interest rates next month, following stronger-than-expected inflation and employment releases this week. 

Whilst concerns the BoE could disappoint again prompted some early profit taking in the Pound this morning, this afternoon’s sustained rally in GBP/EUR appears to indicate some underlying confidence that the bank will deliver in December. 

Meanwhile, the Euro continues to trade without any strong directional bias this afternoon, as EUR investors await a speech by European Central Bank (ECB) President Christine Lagarde later this evening.  

Original article continues below: 

Pound Euro Exchange Rate Underpinned by Surging UK inflation 

The Pound Euro (GBP/EUR) exchange rate continued to march high this morning, with the pairing briefly striking a new 21-month high in the wake of the UK’s latest inflation figures. 

At the time of writing the Pound Euro exchange rate is trading at around €1.1879, still higher than this morning’s opening rate, but below the high of €1.1916 struck earlier in the session. 

Pound (GBP) Soars as Strong UK Inflation Bolsters BoE Rate Hike Speculation 

The Pound (GBP) enjoyed a strong start to today’s session, following the publication of the UK’s consumer price index. 

According to October’s CPI release, headline inflation in the UK rocketed up from 3.1% to 4.2%, sailing past forecasts for a more modest rise to 3.9% and striking its highest levels in almost a decade

Coupled with yesterday’s stronger-than-expected jobs report, today’s inflation figures will bolster expectations the Bank of England (BoE) will hike interest rates when it meets next month, something which has helped to underpinned the Pound Euro exchange rate this morning. 

Richard Carter, head of fixed interest research at Quilter Cheviot, comments: 

‘This morning’s print suggests we should be braced for a showdown at the next MPC meeting in December, where all bets will be on a rate hike. Particularly given we now have more information on the state of the labour market in the UK, which seems to be transitioning from the end of the furlough scheme well.  

‘Yesterday’s employment numbers showed a 0.5% reduction in the unemployment rate between the second and third quarter of the year, despite the unwinding of the furlough scheme.’ 

However, in the wake of the disappointment which followed the BoE’s decision not to hike rates following its November policy decision, GBP investors aren’t taking anything for granted, something which may have prompted GBP/EUR to quickly retreat from its best levels earlier this morning. 

Euro (EUR) Flat as Eurozone Inflation Prints at 13-Year High 

At the same time, the Euro (EUR) is trading in a neutral range, following the publication of the Eurozone’s own inflation figures. 

October’s finalised figures confirm inflation in the bloc climbed to 4.1%, its highest levels since July 2008. 

However, with the European Central Bank (ECB) still maintaining its stance that the recent spike in inflation with be temporary, EUR investors have largely shrugged off the release.  

Pound Euro Exchange Rate Forecast: Dovish Lagarde Speech to Place Pressure on the Euro? 

Still to come today, a speech by ECB President Christine Lagarde could offer fresh impetus for the Pound Euro (GBP/EUR) exchange rate. 

This could see the Euro face some headwinds if Lagarde reiterates her view that the ECB will leave interest rates on hold though 2022, even as most of its peers look to start tightening monetary policy. 

Meanwhile, the focus for GBP investors will turn to the UK’s upcoming retail sales release on Friday. Will a rebound in sales growth in October further buoy BoE rate hike speculation and help to propel Sterling higher?  

Matthew Andrews

Contact Matthew Andrews