Pound Euro Exchange Rate Rallies Following BoE Rate Hike

Pound Euro Exchange Rate Spikes on Hawkish BoE

(Updated 16:00, 16/6/22) The Pound Euro (GBP/EUR) exchange rate is rallying this afternoon, following the Bank of England’s latest interest rate decision.

Sterling initially fell as the bank announced a modest increase of only 25bps points. However, another hawkish split in the bank’s Monetary Policy Committee and pledge to ‘act forcefully’ to bring inflation back under control quickly reversed these losses.

Meanwhile, the Euro remains suppressed by concerns over European energy security.

Original article continues below:

Pound Euro Exchange Rate Subdued as BoE Rate Decision Looms

The Pound Euro (GBP/EUR) exchange rate is rangebound this morning ahead of the Bank of England’s (BoE) latest interest rate decision.

At the time of writing the Pound Euro exchange rate is trading at around €1.1635. Virtually unchanged from this morning’s opening levels.

Pound (GBP) Muted ahead of BoE Rate Decision

The Pound (GBP) is subdued this morning ahead of an impending interest rate decision from the BoE.

The BoE looks set to deliver its sixth consecutive interest rate today. Consensus estimates suggest the Monetary Policy Committee (MPC) will opt for another 25 basis-point hike this month.

Some analysts warn that maintaining the bank’s current pace of tightening is inadequate, particularly with domestic inflation currently at a 40-year hike and the Federal Reserve delivering a 75bps hike yesterday. It’s likely a modest hike would also disappoint GBP investors.

It is not outside the realm of possibility that the bank could opt for a 50bps hike. Three of the nine-strong MPC voted for a 50bps increase in May. A hawkish surprise could also support the Pound.

However, the BoE must balance this against slowing economic growth. The risk of a UK recession may increase if the BoE hikes rates too aggressively. The threat of which could limit Sterling’s upside potential.

The BoE’s forward guidance will also be key in determining the direction of the Pound in the short-term.

A cautious outlook in light of the headwinds facing the UK economy could sink Sterling. A more dovish split in the MPC could also weigh on GBP exchange rates.

Euro (EUR) Undermined by USD Strength

The Euro (EUR) is muted this morning amidst a rebound in the US Dollar (USD). The negative correlation between the two sees the single currency struggle to attract support this morning.

EUR sentiment is also being suppressed by concerns over the war in Ukraine. As the conflict continues to drag on its toll on the Eurozone economy is only growing.

There are also renewed fears over European energy security. On Wednesday Germany accused Russian state-controlled Gazprom of deliberately disrupting gas supplies in order to push up prices.

Pound Euro Exchange Rate Forecast: Sterling to Waver on Brexit Uncertainty?

The fallout from the BoE’s decision is likely to continue to influence the Pound Euro (GBP/EUR) exchange rate through the end of this week.

Elsewhere we might see Sterling also driven by Brexit developments. This could leave the Pound on the defensive if UK-EU tensions continue to flare over the UK government’s push to unilaterality alter the Northern Ireland protocol. GBP investors fear this could lead to a trade war between the two sides.

Meanwhile could a surprise in the Eurozone’s finalised inflation reading for May prompt some movement in the Euro on Friday?

Matthew Andrews

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