Pound Euro Exchange Rate Trends Slightly Higher on Expected Interest Rate Hike
The Pound Euro (GBP/EUR) exchange rate is trending up slightly today, as investors await this afternoon’s interest rate decision from the Bank of England (BoE). Elsewhere, traders await the Euro area’s finalised inflation report.
At the time of writing, GBP/EUR is trading at €1.1921, virtually unchanged from today’s opening levels.
Pound (GBP) Bolstered by BoE Expectations
The Pound is trending up against the majority of its peers this morning, buoyed by expectations of an interest rate hike from the Bank of England.
Forty four of 49 economists polled by Reuters predicted the BoE would raise interest rates today, with just five forecasting policymakers would sit tight – before Russia’s invasion of Ukraine, there had been speculation the Bank might get more aggressive with a half-point rise this month.
While such an outcome now looks less probable, it is not entirely implausible. Analysts at Commerzbank acknowledge:
‘If the BoE were to surprise with a 50bp step after all that would be positive for sterling, just as a hawkish smaller step would be.’
Nevertheless, Guardian economics editor Larry Elliott cautions that the MPC could easily split three ways when it comes to the vote, with some policymakers more concerned than others. Elliott writes:
‘There is nothing the Bank of England can do to affect the global price of energy or food, but some members of the MPC are jittery about higher prices generating pressure for higher wages. The fear is that in a tight labour market, a wage-price spiral will set in.’
Elsewhere, Sterling may be receiving some support from the positive news that two British-Iranian nationals, Nazanin Zaghari-Ratcliffe and Anoosheh Ashoori have been allowed back to the UK following years of detention in Iran.
The pair had been imprisoned on charges of plotting to overthrow the Iranian government spying, respectively: both have continuously protested their innocence.
Euro (EUR) Retains Upside on Persistent Risk Appetite
The Euro (EUR) is continuing to hold its ground against safe-haven peers such as the Japanese Yen (JPY) and Swiss Franc (CHF) today, as risk-on trading elevates perceived riskier currencies.
Upbeat news from Ukraine has helped to support an upbeat market mood, as the UK defence ministry claims the Russian invasion of Ukraine has ‘largely stalled on all fronts’; the Ukrainian military also confirmed that Russia has been unsuccessful in its ground operation.
Capping tailwinds, however, are reports that losses are mounting in the northern Ukrainian city of Chernihiv, with 53 people killed by Russian forces on Wednesday alone.
Furthermore, an educational institution in the city of Merefa was reportedly struck by Russian missiles overnight, and one person has been killed by a Russian missile attack in Kyiv.
Ukrainian President Volodymyr Zelenskyy is repeating his appeal for the implementation of a no-fly zone over Ukraine and further sanctions against Russia, adding that the world must recognise Russia has become a terrorist state.
Pound Euro Exchange Rate Forecast: BoE Rate Decision to Inspire Movement?
Looking ahead, today’s interest rate decision from the Bank of England (BoE) is likely to determine the direction of the Pound Euro exchange rate: if BoE policymakers hike interest rates by 25bps or more, Sterling will likely enjoy tailwinds.
In the meantime, a speech from European Central Bank (ECB) President Christine Lagarde could influence Euro trading; Euro area inflation is also likely to have an effect, as higher inflation will no doubt put pressure upon the ECB to tighten monetary policy.