Pound Euro exchange rate dips ahead of BoE interest rate decision

Pound Euro (GBP/EUR) exchange rate edges down as BoE decision looms

The Pound Euro (GBP/EUR) exchange has ticked lower this morning ahead of the Bank of England’s (BoE) first interest rate decision of 2024.

At the time of writing, GBP/EUR is trading at €1.1704, down roughly 0.3% from this morning’s opening rate.

Pound (GBP) muted ahead of BoE decision

The Pound (GBP) is subdued against the majority of its peers this morning, as GBP investors hold off placing any aggressive bets before the BoE’s interest rate decision later today.

As markets remain confident that rates will stay unchanged at 5.25%, investor focus will lie with the central bank’s accompanying press release, and any potential forward guidance regarding its when it will begin cutting interest rates.

There are signs that the UK economy is slowing, and this has stoked expectations the BoE will start its cutting cycle in the first half of the year.

Analysts at Investec predict:

‘Our base case is that the MPC will cut rates three times this year, beginning in June, with the [main] rate ending this year at 4.50%.’

However, inflation remains stubbornly high and BoE policymakers are likely to want to see more progress on returning it to its 2% target before looking at loosening its monetary policy.

Should the BoE maintain their recent hawkish rhetoric of keeping rates ‘higher for longer’, and dispel speculation of upcoming rate cuts, the Pound could strengthen.

Euro (EUR) subdued as inflation prints as expected

The Euro (EUR) is trapped in a narrow range this morning, as the Eurozone’s latest preliminary inflation figure’s print in line with market expectations.

Headline inflation fell from 2.9% to 2.8% in January, whilst core inflation also fell, dropping from 3.4% to 3.3%, but printing slightly higher than expectations it would cool to 3.2%.

Items such as food, tobacco and alcohol are named as the highest drivers for January’s figure, followed by services and energy.

This is applying some pressure to the Euro this morning as cooling inflation piles more pressure on the European Central Bank (ECB) to begin cutting interest rates in the near term.

On the other hand, the single currency is supported this morning by the Eurozone’s latest unemployment figures. As unemployment held at a record low of 6.4% in December.

Pound Euro exchange rate forecast: BoE Decision to Underpin Sterling?

The fallout from the BoE interest rate decision is likely to be the primary catalyst of movement for the Pound Euro exchange rate, in the second half of this week.

This could see the pairing rally if the BoE firmly pushes back against market rate cut speculation.

Meanwhile a speech from ECB President Christine Lagarde, may influence the Euro later today.

Speaking with CNN on Tuesday, Lagarde expressed the need to ‘be further into the disinflationary process before cutting rates.’

Should she echo her hawkish narrative in today’s speech, the Euro could rise.

Sarah Ebrahem

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