GBP Exchange Rates Tumble Following BoE QE Announcement
Updated 13:35 18/6/20: The Pound to Euro (GBP/EUR) exchange rate plunged below €1.10 this afternoon in the wake of the Bank of England’s (BoE) latest rate decision.
As had been widely predicted, the BoE left interest rates unchanged this month, while announcing a £100bn expansion of its quantitative easing programme.
The BoE’s statement read:
There are signs of consumer spending and services output picking up, following the easing of Covid-related restrictions on economic activity. Recent additional announcements of easier monetary and fiscal policy will help to support the recovery.
The BoE avoided making any mention of negative interest rates however, something which is looks to have capped the downside in Sterling.
GBP/EUR Exchange Rate Muted Ahead of BoE Announcement
The Pound to Euro (GBP/EUR) exchange rate is trading on the back foot this morning as investors await the Bank of England’s (BoE) rate decision later this afternoon.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1129 , down roughly 0.3% from this morning’s opening rate.
Pound (GBP) Faces Volatility if BoE alludes to Possibility of Negative Rates
The Pound (GBP) may be infused with some fresh volatility today as the Bank of England concludes its latest policy meeting.
The general consensus from economists is that the BoE will leave interest rates at a record low of 0.1% today, with announcing an £100bn expansion to its quantitative easing programme.
However, with the stimulus expansion largely priced in by markets, any movement in the Pound is likely to be instead triggered by any mention the BoE might make regarding unorthodox policy, particularly regarding the possibility of negative interest rates.
Analysts at MUFG, comment:
‘We expect the BoE to favour a further expansion of asset purchases with the current purchase plan of GBP 200 billion set to run out. A GBP 100 billion asset purchase expansion was discussed at their last meeting in May. It remains the most likely outcome with risks skewed in favour of a larger expansion.
‘The GBP reaction is likely to depend more though on any update on the BoE’s latest thinking on negative rates. The GBP could stage a relief rally if the updated BoE communication does not reinforce negative rate speculation and vice versa.’
We expect to see the GBP/EUR exchange rate test the waters at €1.10 should the BoE hints it may slash rates below zero in the future.
Euro (EUR) Outlook: All Eyes on EU Summit
Meanwhile, the main catalyst of movement in the Euro (EUR) through the second half of this week looks to be the upcoming EU summit.
EU leaders will hold another virtual meeting this week for a discussion on the bloc’s budget and more importantly the EU’s €750bn coronavirus relief fund.
Its hoped that leaders will be able to reach an agreement on the fund this summer, and while there appears to be broad support, there are still lingering questions which could delay or derail a deal.
Should there be any signs that talks are not progressing well its likely we could see some EUR selling.
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