Pound Euro (GBP/EUR) Exchange Rate Falls Further after BoE Hikes Interest Rates
(Updated 12:15, 3/11/22) The Pound Euro (GBP/EUR) exchange rate has fallen further this afternoon, following the latest interest rate decision from the Bank of England.
The BoE matched market expectations by delivering a 75bps rate hike, but struck a dovish tone when announcing the decision.
With this most recent hike, interest rates have hit their highest point in the UK since 2008. The bank also confirmed that the UK has entered a recession, further denting Sterling.
On the UK economy entering a recession, the bank stated:
‘The MPC’s latest projections described a very challenging outlook for the UK economy. It was expected to be in recession for a prolonged period and CPI inflation would remain elevated at over 10% in the near term.’
At the time of writing, GBP/EUR is trading at around €1.1515, a further drop of roughly 0.8% from the mornings opening rates.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Drops Ahead of BoE Rate Hike
The Pound Euro (GBP/EUR) exchange rate is falling this morning as GBP investors brace for the Bank of England’s (BoE) latest interest rate decision.
At the time of writing, GBP/EUR is trading at around €1.1558, a drop of roughly 0.4% from the morning’s opening rate.
Pound (GBP) Slumps as Investors Await BoE Rate Hike
The Pound (GBP) is weakening this morning, as investors await the Bank of England’s next interest rate decision this afternoon.
Inflation rocketed to a 40-year high of 10.1% in September. As such, the BoE is keen to bring inflation down to their 2% target rate. The markets already expect a rate hike of 75bps, but the question remains of how far the BoE can go without full knowledge of the UK government’s fiscal policy.
Due to the lack of clarity, some analysts are predicting that the BoE will opt for a dovish rate hike. The Bank may opt for a smaller rate hike, due to the UK’s bleak economic outlook.
Victoria Scholar, head of investment at interactive investor, explained this further. She stated:
‘The size of the increase will signal how concerned Bank of England policymakers are about inflation versus a recession as it looks to curtail further price rises without inadvertently causing unnecessary economic pain.’
A smaller-than-expected hike could see the Pound plunge later this afternoon.
Euro (EUR) Mixed as Ukraine-Russia Conflict Escalates
The Euro (EUR) is seeing mixed trade this morning, as the Ukraine-Russia conflict continues to evolve.
While EUR is making gains against some peers, such as the Pound (GBP, the single currency is being limited by continued attacks on Ukrainian infrastructure. However, Russia’s re-joining of the UN grain corridor has cushioned these losses.
The re-establishment of this deal is a significant development for diplomacy in the conflict, and has reassured investors by offering a ray of optimism.
Further limiting EUR’s losses is today’s unemployment data. With a fall to 6.6% as forecast, the EU is enjoying record-low unemployment levels.
Elsewhere, strength in the US Dollar (USD) is preventing the Euro from making gains during today’s session. The pair shares a negative-correlation, and the ‘Greenback’ strengthening often brings weakness in the Euro.
Pound Euro (GBP/EUR) Exchange Rate Forecast: Central Bank Speeches in The Spotlight
Looking ahead beyond the BoE’s decision, data is thin on the ground for GBP/EUR. European Central Bank (ECB) President Christine Lagarde is due to speak on Friday.
Investors will pay close attention to President Lagarde’s speech, looking for any hints about future ECB tightening. The Euro may be buoyed should she continue to strike a hawkish tone.
For the UK, the BoE’s chief economist Huw Pill is also scheduled to deliver a speech on Friday. With the BoE still in the dark around the UK government’s fiscal policy, investors will be waiting for further hints on future policy.
A dovish outlook from Pill and the BoE could weaken Sterling further, but should he strike a hawkish tone, GBP could make gains.