- Sterling (GBP) Exchange Rates Holding Weak Position – Brexit uncertainty continues to weigh on investor confidence
- Pound Recovers from Intraday Lows – Retail sales growth exceeds expectations
- Euro (EUR) Exchange Rates Struggle – ECB acknowledges Brexit threat to Eurozone growth
- Bank of England (BoE) Interest Rate Decision in Focus – Will meeting minutes be dovish in tone?
As traders await the Bank of England (BoE) interest rate decision, the Pound softened versus most of its major peers. The depreciation can be linked to ongoing anxieties surrounding the UK’s EU referendum vote. However, risk-off trade has allowed Sterling to register gains versus the Australian Dollar, New Zealand Dollar and Canadian Dollar in early trade on Thursday.
Pound Sterling (GBP) Exchange Rate Forecast: Bank of England (BoE) to Hold Rates
Given the uncertainty surrounding the EU referendum, and with inflation holding well below the bank’s target, most analysts do not expect any changes to come from today’s Bank of England interest rate decision.
There are some that expect the next move from BoE policymakers to be a rate cut rather than hike, especially if the UK votes to leave the EU. BoE Governor Mark Carney has already expressed concerns that a Brexit could lead to a technical recession.
‘It’s a nervous and very negative environment for the Pound,’ said Niels Christensen, chief currency strategist at Nordea Bank. ‘With Brexit there will be a lot of uncertainty that will hurt activity and it makes sense for the market to price in the probability of a cut.’
Whilst the BoE’s policy decision isn’t likely to cause significant GBP volatility in and of itself, the accompanying meeting minutes may be more impactful. If policymakers make a stronger case against Brexit and argue for easing in the event the UK leaves the EU, the Pound is likely to extend losses versus its major peers.
Even after the Federal Reserve held rates and delivered a comparatively dovish accompanying speech, the GBP/USD exchange rate still touched a 2-month low and could extend losses following the BoE rate decision.
On a more positive note, the latest UK retail sales data produced better-than-expected results. On the year, May’s Retail Sales were forecast to advance by 3.8%, but the result actually showed 5.7% sales growth.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.2576.
Euro (EUR) Exchange Rates Struggle after ECB Bulletin Highlights Brexit Risk
The single currency continues to struggle versus its major peers after registering significant losses yesterday. One of the major concerns for those invested in the Euro is the European Central Bank’s (ECB) asset purchase programme.
Available bonds to purchase have become increasingly limited, and yields from developed nation corporate bonds are falling. After German 10-year bunds saw negative yields for the first time, traders called in to question the ECB’s ability to stimulate an economic recovery in the Eurozone.
‘This will increase further speculation whether the ECB will have enough bonds to buy up to the end of the QE programme’, said Kim Liu at ABN Amro.
Additional Euro losses can be linked to increasing Brexit uncertainty as traders finally begin to price in the potential impact on the single currency. Many investors now believe that the ECB could cut rates in the event of a Brexit.
‘The prospect of Brexit is adding to macroeconomic concerns … and many investors are now looking for further easing from the ECB,’ Commerzbank rates strategist Rainer Guntermann said.
GBP/EUR Exchange Rate Forecast: UK Pound to Hold Losses ahead of BoE Rate Decision
As mentioned above, the Bank of England interest rate decision is highly unlikely to be ground-breaking with nearly every analysts expecting policymakers to keep outlook unchanged. However, the meeting minutes could prove more interesting and may cause depreciation if Brexit risks continue to be highlighted.
The final figures from Eurozone consumer prices hardly deviated from forecasts so the Euro is likely to hold modest gains against the Pound. With that said, if US consumer prices exceed expectations that resultant USD uptrend may cause the Euro to decline.
The Pound Sterling to Euro (GBP/EUR) exchange rate was trending within the range of 1.2500 to 1.2605 during Thursday’s European session.
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