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GBP/EUR Rate Crashes despite BoE Rate Hike – Are Further Losses Ahead?

Bank of England

The Pound has fallen even further against the Euro on Thursday afternoon, dropping from an earlier rate of 1.1255 to a fresh low of 1.1195.

This deterioration comes as traders process the fact that the next Bank of England (BoE) interest rate hike might not come for many months.

Giving a cautious forecast on a possible path of BoE rate hikes in the future was Amit Kara, economist at the National Institute of Economic and Social Research (NIESR);

‘The Monetary Policy Committee (MPC) has signalled a gentle rate hiking path that is similar to our forecast published yesterday. We expect the policy rate to rise by 25 basis points every six months until the Bank Rate reaches 2% in 2021’.

(First published November 2nd, 2017)

The Bank of England (BoE) has raised UK interest rates up to 0.50% today, but the Pound has instead fallen against the Euro because of a highly cautious BoE outlook.

On the other side, the Euro has rallied, having been supported by higher manufacturing activity and falling German unemployment.

Pound Exchange Rates could Worsen on Continue BoE Caution

In the wake of today’s historic Bank of England (BoE) interest rate hike, the Pound stands to make further losses against the Euro in the future.

This is because traders had previously been over-optimistic about a possible improvement in the BoE’s outlook.

If there are further signs that the bank is concerned about the UK economy going ahead, then the Pound could see continued losses in the GBP/EUR pairing.

Recent BoE minutes have shown that the bank expects lower real incomes in the remainder of 2017, which could put the country off to a poor start in 2018.

In the event that UK domestic data shows a turnaround or a recovery, however, the Pound could rally because of better expectations about the next BoE forecasts.

Euro may Drop on Continued Catalonian Unrest

While the Catalonian independence crisis has to some extent been stabilised, the situation remains a possible threat to the value of the Euro.

The latest news has been that deposed Catalonian government officials have appeared in the Madrid courts, charged with crimes against the state.

Having effectively nullified the Catalonian government, the Spanish government now appears to want to tie up loose ends before elections in the coming months.

The former officials have been charged with rebellion and sedition for their attempts at obtaining Catalonian independence, as has former Catalonian President Carles Puigdemont.

Unlike his fellows, however, Puigdemont has not attended court hearings, having previously flown to Belgium while his government was being shut down.

Belgium and Spain share the same EU laws and legislation, so there is no guarantee that Puigdemont won’t be dragged back to Spain with a European arrest warrant.

If the trials of the former Catalonian leadership point to lengthy prison sentences, then violent protests could erupt in the streets of Barcelona.

Such a sign of the continued desire for independence might devalue the Euro, as it would suggest that there is little that can be done to find a quick, peaceful solution to the problem.

Recent Interbank GBP EUR Exchange Rates

At the time of writing, the Pound to Euro (GBP EUR) exchange rate was trading at 1.1255 and the Euro to Pound (EUR GBP) exchange rate was trading at 0.8881.