Pound euro (GBP/EUR) subdued despite BoE rate cut
(Updated 15:45, 01/08/24) The pound euro (GBP/EUR) exchange rate is trapped n a narrow range this afternoon despite the Bank of England (BoE) enacting its first interest rate reduction since 2020.
The BoE delivered a widely expected cut on interest rates this afternoon, with five of the nine voting policymakers opting to reduce the bank’s base rate. While this saw the pound (GBP) tumble against the majority of its rivals, policymaker dissent appears to limit Sterling’s losses against the euro (EUR).
Minutes from the BoE’s monetary policy meeting explained why some rate-setters opposed the August rate cut, stating:
‘These members thought that there was a greater risk of more enduring structural shifts, such as a rise in the medium-term equilibrium rate of employment, a fall in potential growth and a rise in the long-run neutral interest rate, contributing to domestic inflationary persistence.
They preferred to maintain the current level of Bank Rate until there was stronger evidence that these upside pressures would not materialise.’
Elsewhere, EUR’s negative correlation with a strengthening US dollar (USD), coupled with a surprise uptick in Eurozone unemployment serve to limit demand for the common currency.
Looking ahead, BoE Chief Economist Huw Pill is due to speak tomorrow afternoon. As one of the bank’s dissenting voices, could any convincingly hawkish rhetoric serve to lift GBP from its recent lows?
At the time of writing, GBP/EUR is trading at €1.1859, virtually unchanged from this morning’s opening levels.
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Pound euro (GBP/EUR) exchange rate wobbles as markets anticipate BoE rate cut
The pound euro (GBP/EUR) exchange rate is volatile this morning ahead of the Bank of England’s (BoE) imminent interest rate decision.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1839, virtually unchanged from this morning’s opening rate.
Pound (GBP) plummets ahead of BoE rate decision
The pound (GBP) is tumbling against the majority of its rivals this morning, as markets brace for the Bank of England’s looming monetary policy decision.
Investors have largely shrugged off a better-than-forecast manufacturing PMI in the UK, as firming expectations of an August interest rate cut sour Sterling sentiment.
The BoE is due to deliver its latest interest rate decision at midday, with a majority of investors and economists alike expecting the central bank to deliver its first rate reduction since 2020. This would see the BoE lower the current base rate from a sixteen-year high of 5.25%, and as a result, hammering GBP exchange rates.
James Smith, Developed Market Economist for ING, expects today’s vote to be a ‘close call’, with the majority of policymakers likely to vote for a rate cut.
Smith commented:
‘Some of the recent economic recovery can also be traced back to expectations of imminent rate cuts. And decent growth for the rest of 2024 relies, in part, on those cuts being delivered, a fact that won’t have been lost on BoE officials.
The bottom line is that there is just about enough in the recent data to give the Bank confidence to begin lowering rates.’
Of particular interest this afternoon will also be accompanying policymaker guidance, with any dovish signals likely to further undermine the pound.
Euro (EUR) mixed amid weak manufacturing demand
The euro (EUR) is trading in a wide range this morning amid confirmation of ongoing weakness in the Eurozone’s factory activity.
The bloc’s finalised manufacturing PMI printed at 45.8 in July for a second consecutive month, pointing to a fourteenth consecutive decline in the sector’s output.
Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said:
‘The widely held belief that the eurozone’s recovery would pick up speed in the second half of the year is taking a hit, thanks to the latest HCOB PMI index for the manufacturing sector.
Given this weak data, we’ll probably need to lower our GDP growth forecast for the year from 0.8%.’
Elsewhere, a unexpected increase in the Eurozone’s unemployment rate also applies light downward pressure to EUR. Edging slightly higher to 6.5%, from an all-time low of 6.4%, signs of slack in the recently robust EU labour market could serve to deter investor interest in EUR as the session progresses.
Pound euro exchange rate forecast: BoE in spotlight
Looking ahead, the core catalyst of movement for the pound euro exchange rate today will be the hotly anticipated BoE rate decision. A widely anticipated rate cut could see GBP tank against its rivals, extending the morning’s losses. Alternatively, an unexpectedly hawkish stance could lift GBP from recent lows.
In addition, global risk dynamics may influence movement in the currency pairing, with any bearish trade likely to lift the safe-haven common currency against its riskier peers. However, an upbeat sentiment could lend the increasingly risk-sensitive pound modest support.