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BoE’s Surprise Rate Cut Leaves the Pound Euro (GBP/EUR) Exchange Rate Flat

Bank of England

Pound Sterling Euro (GBP/EUR) Exchange Rate Muted as BoE Slash Rates

The Pound Sterling Euro (GBP/EUR) exchange rate remained largely flat after the Bank of England’s (BoE) emergency rate cut. This left the pairing trading at around €1.1412.

The BoE became the latest central bank to slash interest rates, following in the US Federal Reserve with a surprise cut of 50 basis points.

The move came in response to the increased fears around the spread of coronavirus and just hours before Chancellor Rishi Sunak’s Spring Budget.

Commenting on this, Rabobank’s senior currency strategist, Jane Foley noted:

‘We saw an immediate reaction. The 50 basis point move was on the aggressive side of expectations and it was a bit of a surprise that they went before the budget.

‘But it is in some way reassuring that the BOE say they have been coordinating with the Treasury and the fact that UK authorities have prepared a comprehensive package of measures.’

Sterling remained under pressure as markets had priced in a 25 basis point cut and according to Moh Siong Sim, currency strategist at the Bank of Singapore:

‘Markets had priced in more than 25 basis points, but not the full extent of 50 basis points.

‘But it’s not a surprise in the sense that the market was kind of expecting the bank to team up with the UK government […] it looks like that 50 basis point rate cut could signal that we could expect something quite substantial from the budget itself.’

Euro (EUR) Flat Ahead of ECB Meeting

Meanwhile, the single currency was left flat this morning as markets bet the European Central Bank (ECB) would also cut rates this week.

The ECB is expected to cut rates by 10 basis points on Thursday. Although with interest rates at -0.5% many investors think the bank has limited room for policy easing.

The central bank’s policymakers are facing pressure to ease after Italy was forced to put the entire country on lockdown to slow the spread of Covid-19.

The number of cases in the country surpassed 10,000 while the death toll reached 631.

Pound Euro Outlook: UK Spring Budget in Focus

Looking ahead, Sterling (GBP) could see further movement against the Euro (EUR) as markets eye today’s UK Budget after the BoE’s rate cut.

If British Chancellor, Rishi Sunak announces further measures to help protect the UK economy from Covid-19, Pound sentiment will rise.

Meanwhile, the single currency will remain under pressure ahead of the European Central Bank’s (ECB) meeting.

If the ECB cut rates, but signal they have little room for further easing, the Pound Euro (GBP/EUR) exchange rate will rise.