Pound Euro (GBP/EUR) Exchange Rate Fluctuates Lower despite BoE Decision
(Updated 16:30, 11/05/23) The Pound Euro (GBP/EUR) exchange rate has now slipped into negative territory, having previously jumped to a five-month high following the Bank of England (BoE) interest rate decision.
Bank of England lifts inflation and growth forecasts as it raises interest rates to 4.5% – video https://t.co/GduDO9SR5L
— Guardian video (@guardianvideo) May 11, 2023
Investors seemed put off the Pound (GBP) by comments from BoE Governor Andrew Bailey. Bailey said he expects inflation to cool sharply, which would negate the need for further interest rate rises.
Meanwhile, the safer Euro (EUR) enjoyed support against the riskier Pound amid a souring market mood.
A rise in Eurozone consumer inflation expectations may have also supported EUR by increasing the possibility of another European Central Bank (ECB) rate hike.
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Pound Euro (GBP/EUR) Exchange Rate Spikes then Slumps after BoE Rate Hike
(Updated 13:55, 11/05/23) The Pound Euro (GBP/EUR) exchange rate jumped earlier this afternoon, briefly hitting a new year-to-date high, after the Bank of England (BoE) raised interest rates by 25bps. However, the Pound (GBP) couldn’t hold its gains. After touching €1.1544 – GBP/EUR’s highest level since December 2022 – the pairing has retreated to €1.1514, at the time of writing.
Sterling’s initial upside came as the bank left the door open to more rate hikes in the future. In its accompanying statement, the BoE said:
‘The MPC will continue to monitor closely indications of persistent inflationary pressures, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.’
However, in the following press conference, BoE Governor Andrew Bailey said that he expects inflation to have started to fall sharply in April. These comments sapped support for Sterling.
The Pound Euro exchange rate is still up on the day, although its gains currently seem limited.
As the session unfolds, Sterling could creep higher. The BoE also upgraded its growth forecasts for the UK economy, saying the country will now sidestep a recession. In addition, it expects inflation to cool more slowly than initially anticipated. The prospect of a stronger UK economy and the possibility of more rate hikes could lift GBP/EUR.
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Pound Euro (GBP/EUR) Exchange Rate Fluctuates as BoE Policy Meeting Looms
The Pound Euro (GBP/EUR) exchange rate is choppy this morning as markets await the Bank of England (BoE) interest rate decision this afternoon.
At the time of writing, GBP/EUR is trading at around €1.1502, having wavered in a narrow range from €1.1490 to €1.1522.
Pound (GBP) Wobbles as Investors Await BoE Meeting
The Pound (GBP) is mixed this morning, as uncertainty ahead of the BoE’s monetary policy meeting leaves Sterling without a clear direction.
Markets widely expect the bank to raise rates by 25bps – a move that is already priced in. What remains unclear is whether the BoE will signal the need for further rate hikes or hint at a coming pause in its policy tightening cycle.
Inflation in the UK remains an outlier in comparison to similar Western economies. The headline rate is currently at 10.1%, versus 7% in the Eurozone and 4.9% in the US.
While the BoE expects inflation to soon fall sharply – a forecast that would suggest a rate hike pause was prudent – the UK’s consumer price index has continually printed higher than expected.
Against this backdrop, the BoE faces a tough decision. As markets await the policy meeting, Sterling is so far experiencing choppy trade.
Euro (EUR) Weaker amid USD Strength
Meanwhile, the Euro (EUR) lacks support today, which is allowing GBP/EUR to waver slightly higher, despite the mixed tone around the Pound.
One factor weighing down the common currency is its negative correlation to the US Dollar (USD), which is rallying this morning.
Furthermore, the Euro continues to face lingering headwinds following the European Central Bank’s (ECB) dovish tilt last week. Although multiple rate setters yesterday suggested more hikes may be necessary, talk of rate cuts has dampened EUR’s appeal.
Pound Euro Exchange Rate Forecast: Hawkish Hints to Send GBP/EUR Higher?
Looking ahead, the Bank of England decision at noon has the potential to drive significant movement in the Pound Euro pair. Investors will be combing the bank’s policy statement for clues as to whether the BoE will deliver more interest rate rises in the future.
If the BoE seems dovish, then Sterling could slide. This may be the bank suggesting that it wants to assess the impact of previous rate hikes before tightening further, or a subtle change of language in the accompanying statement.
On the other hand, if the bank leaves the door open to further interest rate rises then GBP/EUR could soar.
As for the Euro, European Central Bank policymaker Isabel Schnabel is due to speak this afternoon. Schnabel is one of the most hawkish rate setters at the ECB. If she advocates the need for further hikes, the single currency could find some support. However, her words may only have a limited impact.