GBP/EUR Exchange Rate Wobbles ahead of BoE and ECB Rate Decisions
The Pound to Euro (GBP/EUR) exchange rate is muted this morning as markets brace for the latest Bank of England (BoE) and European Central Bank (ECB) interest rate decisions.
At the time of writing, the GBP/EUR exchange rate is trading at around €1.1604. Down roughly 0.2% from this morning’s opening rate.
Pound (GBP) to be Undermined by a Cautious BoE?
The Pound (GBP) could face some headwinds later this afternoon as the BoE concludes its final policy meeting of 2022.
The bank is widely expected to deliver a 50bps hike this month, following a bumper 75bps increase in November.
With the hike largely priced any movement in the Pound is likely to be linked to the BoE’s outlook for 2023, in addition to the voting composition of the Monetary Policy Committee (MPC).
A split vote could weigh heavily on the Pound. Not only will it complicate the BoE’s messaging on policy but it will also highlight the balancing act the bank faces in taming inflation while not pushing the UK into a deeper recession.
Michael Hewson, Chief Market Analyst at CMC Markets, comments:
‘The weak economic outlook will play a part in today’s decision with the real possibility of a three-way split on policy, which will make the prospect of a clear message much more difficult.
‘We could see some policymakers argue for a 25bps hike as opposed to a 50bps move, while we could also see some push for a move of 75bps in order to front load the hiking process.’
The BoE will deliver its interest rate decision at 12:00 GMT.
Euro (EUR) to Rally on Surprise 75bps Rate Hike?
At the same time, movement in the Euro (EUR) is set to be dominated by the ECB’s own interest rate decision today.
The ECB is also expected to deliver a 50bps interest rate hike this month, although some analysts are suggesting that it is not outside the realms of possibility that the ECB could opt for another oversized 75bps increase.
The Eurozone has so far managed to avoid a recession and early data suggests the bloc may also manage to avoid a contraction in the fourth quarter.
This provides the ECB with a little more leverage to maintain its recent rate hike trajectory. Expect to see the Euro skyrocket this afternoon if the ECB surprises markets with a larger-than-expected rate rise.
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