Pound Euro Exchange Rate Plunges to Four-Month Low as BoE Leaves Rates On Hold

Pound Euro (GBP/EUR) Exchange Rate

(Updated 15:15, 21/09/23) The Pound Euro (GBP/EUR) exchange rate extended the morning’s losses this afternoon, dropping to a four-month low, after the Bank of England (BoE) opted to leave interest rates untouched.

While markets had been expecting a roughly 50-50 chance that the BoE could hike or hold, the decision still sent the Pound (GBP) lower.

The BoE left the door open to future rate hikes, which may have tempered Sterling’s losses. However, many economists speculate that the bank may have finished its tightening cycle.

One such economist was Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics. Tombs commented:

‘It’s not possible to confidently predict the outcome of the MPC’s final two meetings this year, given the marginal vote split this month and the committee’s deliberate attempts to keep its options open.

‘But with surveys pointing to a further increase in labour market slack, a slight slowdown in wage growth and lower Consumer Prices Index inflation by year-end, the case for hiking again likely won’t be stronger in November or December than today.

‘Accordingly, we now think that 5.25% will be the peak level of bank rate in this hiking cycle.’

The Pound Euro exchange rate is currently trading at around €1.1530, down 0.4% on the day and close to its lowest levels in nearly four months.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Slumps as Markets Brace for BoE

The Pound Euro (GBP/EUR) exchange rate fell sharply this morning, hitting a new six-week low, as yesterday’s cooler consumer price index continues to weigh on Sterling ahead of today’s Bank of England (BoE) interest rate decision.

At the time of writing, GBP/EUR is trading at €1.1548, down almost 0.3% from this morning’s opening levels.

Pound (GBP) Slides amid Lingering CPI Headwinds

The Pound (GBP) dropped this morning as the currency continues to face pressure ahead of today’s BoE decision.

Yesterday, the UK’s CPI came in cooler than expected. Headline inflation unexpectedly eased while the core rate plunged from 6.9% to 6.2%, versus forecasts of a more modest fall to 6.8%.

The weaker readings saw markets slash bets on a rate hike today, with the probability of a hike falling from 80% to around 50%.

Sterling is continuing to suffer from the pullback in BoE bets today, having attempted to regain some ground overnight.

In addition, a gloomy market sentiment is pressuring the increasingly risk-sensitive Pound.

Euro (EUR) Rises amid Risk-Off Mood

Meanwhile, the Euro (EUR) is stronger this morning as the prevailing risk-off market mood lifts the safer single currency.

Last night, the Federal Reserve signalled that it was open to raising interest rates again before the end of the year, as it voted to keep policy unchanged this month. The prospect of higher global borrowing costs has rattled investors, sparking widespread risk aversion.

The single currency also seems to be enjoying some dip-buying, having dropped sharply overnight. As the Euro shares a strong negative correlation with the US Dollar (USD), last night’s rally in USD weighed heavily on EUR. Today, investors may be seeking to pick up a bargain by buying the Euro.

Pound Euro Exchange Rate Forecast: BoE Decision to See Sterling Slump?

The spotlight today is undoubtedly on the Bank of England interest rate decision. Following yesterday’s inflation data, the decision is now on a knife edge.

If the BoE opts to leave rates unchanged, Sterling could slump. A quarter-point hike, on the other hand, could help GBP recoup some losses.

However, even a rate rise may only provide temporary relief, if the British central bank signals that this may be its last hike. With inflation seemingly easing and the UK economy showing signs of stress, the BoE could indicate that its tightening cycle is over. If so, expect GBP exchange rates to plunge.

Meanwhile, European Central Bank (ECB) President Christine Lagarde is due to speak this afternoon. Last week, the ECB strongly indicated that its tightening cycle could be over. If Lagarde reiterates this today, the Euro could weaken – potentially cushioning GBP/EUR’s losses.

Samuel Birnie

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