Pound Euro (GBP/EUR) Exchange Rate Subdued as BoE Under Pressure to Deliver 75bps Hike

Pound Euro Exchange Rate Muted ahead of BoE Rate Decision

(Updated 08:30, 22/9/22) The Pound Euro (GBP/EUR) exchange rate trades on the back foot this morning. As GBP investors brace for the Bank of England’s (BoE) latest interest rate decision.

Analysts are currently split on whether the BoE will stay the course and deliver another 50bps hike, or whether it will follow the Federal Reserve and European Central Bank (ECB) in opting for a 75bps increase.

A 50bps hike could see the GBP/EUR exchange rate plunge. Fears that the BoE is falling behind the curve likely to weigh heavily on Sterling.

However, in the face of an increasingly bleak UK economic outlook, economists at Commerzbank aren’t confident a 75bps hike will be enough to revive the Pound’s fortunes:

‘Even a 75 bps rate hike is not likely to be sufficient to provide a lasting breather for Sterling. The dire growth outlook, rising government debt and high current account deficit point towards depreciation pressure on Sterling continuing for now.’

The BoE’s interest rate decision is scheduled for 12:00 BST.

Original article continues below:

Pound Euro Exchange Rate Firms amid Renewed Ukraine Concerns

The Pound Euro (GBP/EUR) exchange rate is trending higher this morning. As fears of an escalation of the conflict in Ukraine take its toll on the single currency.

At the time of writing the Pound Euro exchange rate is trading at around €1.1447. Up roughly 0.3% from this morning’s opening rate.

Euro (EUR) Slips amid Escalation of Ukraine Conflict

The Euro (EUR) opens today’s session on the defensive, following Vladimir Putin’s announcement of a ‘partial mobilisation’ of Russian forces.

In a televised address to the nation, Putin said:

‘If the territorial integrity of our country is threatened, we will use all available means to protect our people – this is not a bluff… That’s why I asked the ministry of defence to agree to partial mobilisation.’

The announcement comes a day after leaders in Russian-controlled parts of Ukraine outlined plans to hold a referendum on becoming integral parts of Russia.

EUR investors fear this marks a major escalation in the conflict, which has already taken a heavy toll on the Eurozone economy over the past six months.

The Euro strengthened earlier this month after Ukrainian forces were able to reclaim large swaths of territory occupied by Russia.

EUR investors had hoped this could help bring the war to an end a little earlier than previously thought. However, Putin’s announcement appears to have dashed these hopes.

Pound (GBP) Undermined by Stark Increase in Government Borrowing

While it has been able to advance against a weakened Euro, the Pound (GBP) is struggling to find purchase elsewhere this morning.

The publication of the UK’s latest public sector borrowing figures appear to be keeping a cap on Sterling, after reporting a sharper-than-expected increase in borrowing last month.

The public deficit climbed to £11.8bn in August, versus forecasts for a £8.45bn deficit.

The latest increase is a concern for GBP investors as it comes at a time when borrowing costs are on the rise. While also raising questions over Liz Truss’s plans to borrow even more to cover her ‘energy price guarantee’.

Pound Euro Exchange Rate Forecast: BoE Interest Rate Decision in the Spotlight

The Pound Euro (GBP/EUR) exchange rate faces some potential volatility on Thursday as the Bank of England (BoE) concludes its latest interest rate decision.

Another rate hike is certain, but GBP investors are currently split on whether the BoE will opt for a 50bps or 75bps increase.

If policymakers opt for the latter the Pound is likely to rally. Whereas a 50bps increase could see Sterling slump as this is likely to be seen as inadequate by GBP investors.

In the meantime, developments in Ukraine are likely to continue to influence the GBP/EUR exchange rate. EUR investors are likely to be particularly sensitive to any additional rhetoric from Russian officials over the next couple of days.

Matthew Andrews

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