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GBP/EUR Exchange Rate Forecast: Pound Struggles as Investors Brace for Upcoming BoE Rate Decision

Bank of England

GBP/EUR Exchange Rate Subdued as BoE Rate Decision in Focus 

The Pound to Euro (GBP/EUR) exchange rate is struggling to hold its ground in early trade this week as markets brace for the Bank of England’s (BoE) upcoming rate decision. 

At the time of writing the GBP/EUR exchange rate is trading at around €1.1076, down roughly 0.4% from this morning’s opening rate. 

Will a Cautious Outlook from the BoE Undermine the Pound (GBP)? 

The Pound (GBP) enjoyed considerable support through last week’s session, but it looks as though Sterling could struggle to replicate its success in the face of a cautious BoE. 

The Bank of England is set to conclude its latest policy meeting on Thursday, with the general consensus being that policymakers will opt to leave its monetary policy untouched this month. 

This will leave interest rates at a record low of 0.1% and the value of its quantitative easing (QE) programme at £745bn, having expanded it by £100bn at its previous meeting. 

Analysts expect policymakers to note the recent improvement in UK economic indicators, but maintain a cautious outlook for the second half of 2020, amidst a clear risk that the economic recovery could be tempered by a coronavirus resurgence. 

Philip Shaw, chief economist at Investec, predicts: 

‘What is more critical is how the economy looks towards the end of the year… members will note the signs of higher coronavirus infection rates on Continental Europe, in the US and to an extent the UK. 

‘The MPC’s assessment of the current indicators will probably be one of guarded optimism, but tempered strongly by the risks facing the economy further ahead.’ 

GBP investors are also likely to keep an eye out for any suggestion towards exploring unconventional monetary policy, amidst ongoing negative rate speculation. 

Euro (EUR) Buoyed by Recovery Hopes 

At the same time, the Euro (EUR), looks poised to strengthen this week as the single currency continues to find support amidst hopes for a relatively speedy recovery in the Eurozone. 

Following on from EU leaders historic accord on a €750bn coronavirus relief fund, the European Central Bank (ECB) has reiterated its commitment to providing the necessary stimulus to support the economic recovery. 

Speaking this morning, the ECB’s Chief Economist Philip Lane said:  

‘For our part, the ECB is committed to providing the monetary stimulus needed. The overall envelope of PEPP purchases is a core determinant of the ECB’s overall monetary stance.’ 

Analysts suggest this may hint at plans for the ECB to expand its Pandemic Emergency Purchase Programme.