Pound Euro (GBP/EUR) Exchange Rate Volatile as Markets Process Shock BoE Hike
(Article updated 16:46, 22/6/23) The Pound Euro (GBP/EUR) exchange rate is seeing volatile trade this afternoon, as markets continue to process the Bank of England’s (BoE) 50bps hike.
While the BoE is prioritising it’s goal to drive down inflation, GBP investors appear to be mindful of the impact the rate hikes may have on the UK economy.
Because of this, Sterling seems unable to fully capitalise on the hawkish hike.
Allan Monks, Economist at JPM, commented:
‘This new policy rate level in our forecast recognizes that there is a dynamic between wages and prices that needs to be stopped, and assumes the BoE will need to hike further in order to trigger a significant weakening in the labour market.’
However, BoE Governor Andrew Bailey has denied that the Bank is aiming to force the UK into recession. In any case, the impact of further tightening appears to be worrisome to investors.
At the time of writing, GBP/EUR is trading at around €1.1632, showing little movement from the morning’s opening rates.
Updated article continues below:
Pound Euro Slips as BoE Post Bumper Hike
(Article updated 12:12, 22/6/23) The Pound Euro is weakening this afternoon, following the Bank of England’s (BoE) shock 50bps rate hike.
With inflation remaining a sticking point in the UK, the hike pushes the current interest rate up to 5%, a 15-year high.
While prompting an initial spike, the minutes accompanying the decision indicated that the BoE would remain on a data-driven path.
They stated:
‘The MPC would continue to monitor closely indications of persistent inflationary pressures in the economy as a whole, 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.’
Investors appear to be wary of the impact raising rates to 5% may have on the UK economy. Furthermore, the expectation remains that inflation will sharply cool later in the year.
At the time of writing, GBP/EUR is trading at around €1.1585, falling by roughly 0.25% from the morning’s opening rates.
Original article continues below:
Pound Euro Exchange Rate Calm Ahead of BoE Rate Decision
The Pound Euro exchange rate is rangebound this morning, ahead of the Bank of England’s (BoE) interest rate decision.
At the time of writing, GBP/EUR is trading at around €1.1613, showing little movement from the morning’s opening rates.
Pound (GBP) Calm Before Rate Decision Storm
The Pound (GBP) is remaining calm this morning, ahead of noon’s interest rate decision from the Bank of England.
Markets are torn on whether or not the BoE will pursue a bumper 50bps hike, or stick with the current pattern of 25bps hikes.
However, these bets appear to have done very little for Sterling. Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE at ING, explains:
‘However, it has been noticeable this week that sterling has not followed short-dated UK rates higher – suggesting investors are looking through the hiking cycle to the pain ahead for the UK economy and asset markets.’
With this in mind, a 50bps hike later today could cause more pain for GBP in the long run. Recession anxiety served to dent Sterling during yesterday’s trade, with the focus shifting to the UK mortgage market.
Furthermore, whether or not the BoE pushback on the current expectations of up to 150bps of future tightening remains to be seen. If they do, then GBP could weaken over today’s session.
Euro (EUR) Lacks Direction amid Minimal Data
The Euro (EUR) is lacking direction this morning, due to a light data calendar. Furthermore, relative strength in the US Dollar could be undermining the common currency.
However, persistent bets on further tightening from the European Central Bank (ECB) could be serving to keep EUR rates cushioned.
While indications of a growing split in the ECB may be tempering these bets, the door remains open for at least one more hike in July.
Elsewhere, a tentative market mood could be serving to cushion the common currency. As it holds a safer stature than riskier assets such as the Pound, this may be contributing to the narrow trade this morning.
GBP/EUR Exchange Rate Forecast: UK Retail Sales Dip to Dent GBP?
Beyond the rate decision at noon, the core catalyst of movement for the Pound is likely to be tomorrow’s retail sales data.
Economists are forecasting a decrease of 0.2% on a monthly basis, which could weigh on Sterling. This would point to growing weakness in the retail sector, which may spark further economic anxieties.
Following this is the latest set of UK private sector PMI flashes. Both services and manufacturing are forecast to have cooled on a monthly basis, which could further dent GBP rates.
For the Euro, the latest set of private sector indexes are due to print tomorrow. With both manufacturing and service sectors forecast to see a cooldown, the common currency could struggle for support.
Elsewhere, risk appetite could shape the pairing. Due to the Euro’s nature as a safer currency, a souring market mood would weaken GBP/EUR.