Pound Euro (GBP/EUR) Exchange Rate Continues to Slide Post BoE and ECB
(Updated 16:10, 3/2/23) The Pound Euro (GBP/EUR) exchange rate fell to a fresh four-month low today as markets continued to reprice both currencies following the central bank decisions yesterday. In addition, new comments and economic data fuelled market expectations.
In the Eurozone, the producer price index unexpectedly ticked higher month on month in December. Producer inflation rose 1.1%, rather than falling 0.4%. This could suggest that core inflationary pressures are not subsiding as quickly as expected, which may prompt the European Central Bank (ECB) to maintain its hawkish stance.
Meanwhile, Bank of England (BoE) Chief Economist Huw Pill said that the bank must be careful not to raise interest rates too high.
Speaking to Times Radio, Pill said:
‘But of course it is also important that we guard against the possibility of doing too much. We need to keep that zen-like balance in our objective. We have to recognise that we have done a lot with monetary policy already. Interest rates have risen by almost 400 basis points over a little more than a year. And given the lags in the transmission of monetary policy, there is quite a lot of effects of those rises still to come through. There is a lot of policy in the pipeline.’
These comments reinforced expectations that the BoE could slow or even pause its hiking cycle at its next meeting.
With the ECB looking like it could remain hawkish, and the BoE becoming increasingly dovish, GBP/EUR extended its selloff.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Subdued as Dust Settles following Rate Decisions
The Pound Euro (GBP/EUR) exchange rate is on the back foot today following the European and British central bank decisions yesterday.
At the time of writing, GBP/EUR is trading at around €1.1204, close to its lowest levels since September 2022 and 1.6% down on the week.
Pound (GBP) Licks Wounds following BoE Decision
The Pound (GBP) is subdued today, as yesterday’s dovish interest rate decision from the Bank of England (BoE) continues to hang over the currency.
The bank raised rates by 50bps, as expected. However, a more dovish tone led markets to speculate that it is nearing the end of its tightening cycle. This put significant pressure on Sterling, which has continued into today’s trade.
Also impacting the Pound this morning is the UK’s final services PMI. Although it came in higher than preliminary estimates, it still showed that January was the worst month in two years for the country’s vital services sector.
There were some positive signs, though. Tim Moore, Economics Director at S&P Global Market Intelligence – the organisation that co-authored the survey – commented:
‘The latest survey illustrates that the UK economy risks falling into recession as labour shortages, industrial disputes and higher interest rates take their toll on activity.
‘However, the downturn in service sector output remained relatively shallow at the start of 2023. Encouragingly, new order volumes moved closer to stabilisation and export sales picked up in January, which contributed to a marginal upturn in overall employment numbers.’
This may be helping to cushion GBP/EUR’s downside today.
Euro (EUR) Stays Strong as ECB-BoE Policy Gap Narrows
Meanwhile, the Euro is enjoying ongoing tailwinds against the Pound thanks to the European Central Bank’s (ECB) comparatively hawkish decision.
The ECB also delivered a half-point hike, but unlike the BoE it signalled another move of the same size at its March meeting. The single currency found its gains capped, however, as the ECB refused to commit to further hikes from April onwards.
The Eurozone’s final services and composite PMIs were also published earlier this morning. Both were revised marginally higher, confirming that private sector activity in the bloc had returned to growth.
In addition, the Eurozone’s producer price index unexpectedly ticked up month over month by 1.1%, rather than falling by 0.4%. This could raise expectations of more ECB rate hikes, thereby lifting the common currency as the session unfolds.
Pound Euro Exchange Rate Forecast: US Data to Trigger Movement?
Looking ahead, a speech from BoE Chief Economist Huw Pill could impact the Pound, if Pill elaborates on his expectations for further monetary tightening. If Pill signals that he believes further rate hikes will be necessary, this could lend Sterling some support.
In the afternoon, some US economic data could affect GBP/EUR. Economists expect the US non-farm payrolls report to show a sixth consecutive month of slowing hiring activity. Such a result could impact global risk sentiment, either by sparking fears of a US economic downturn or by raising hopes that the Federal Reserve will opt for a slower pace of policy tightening.
If the data triggers risk-off trade, the safer Euro could firm. If markets rally in response, the Pound may strengthen.