Pound to Euro Exchange Rate Sheds Recovery Despite Bank of England (BoE) Interest Rate Hike
Updated: 14:27 BST 02/08/2018:
A brief boost in demand for the Pound Sterling to Euro (GBP/EUR) exchange rate was short-lived on Thursday afternoon, as the Bank of England’s (BoE) expected interest rate hike saw a mixed reaction from Pound (GBP) investors.
Sterling climbed when the bank made an unexpectedly unanimous vote to hike UK interest rates, but tumbled again following cautious comments from Bank of England Governor Mark Carney.
Carney indicated in a speech following the decision that the bank would continue to gradually hike UK interest rates in the coming years – but analysts perceived this language as indicating the rate hikes would be slower than previously expected.
Carney also hinted that if the Brexit process went worse than expected, the BoE could simply cut UK interest rates again.
At the time of writing on Thursday, the Pound to Euro exchange rate trended in the region of 1.1227 after tumbling from the week’s high of 1.1285.
[Published 09:48 BST 02/08/2018]
Pound to Euro Exchange Rate Steadies Ahead of Predicted Bank of England (BoE) Rate Hike
Expectations that the Bank of England (BoE) will hike UK interest rates for the first time since last year during Thursday’s August policy decision hasn’t helped the Pound Sterling to Euro (GBP/EUR) exchange rate to advance this week.
Still, GBP/EUR has recovered from this week’s lows at least. After opening the week at the level of 1.1241, GBP/EUR briefly tumbled to a low of 1.1202, but has since recovered to around the week’s opening levels again.
GBP/EUR trended steadily on Thursday morning as investors anticipated the day’s Bank of England (BoE) news, but the BoE is not expected to announce anything that will cause significant movement in the Pound (GBP).
For example, if the bank hikes UK interest rates but is cautious about the UK economic outlook the Pound’s trajectory will remain unchanged. Even if the bank is more hawkish, analysts expect that Brexit jitters will keep a lid on the Pound’s advance potential.
It’s also still possible the Bank of England will leave UK interest rates frozen again – which would likely send the Pound plunging.
Pound (GBP) Exchange Rate Potential Limited as Brexit Process Clouds Economic Outlook
Despite expectations for higher UK interest rates, the Pound hasn’t really benefitted much from the bullish bets at all and remains near its worst levels in months against major rivals like the Euro (EUR).
It has been kept under pressure by a lack of particularly impressive UK data, which in turn is being negatively influenced by underlying Brexit uncertainties.
While the Brexit preparation period is set to formally end in March next year, the UK government still faces considerable obstacles on its Brexit plans, both from other UK politicians from all parties and from EU negotiators.
Concerns about the possibility of a worst-case scenario ‘no deal’ Brexit still being possible have been weighing heavily on UK markets, as well as UK economic activity.
GfK’s UK consumer confidence survey results from July unexpectedly worsened from -9 to -10 on Tuesday, and Wednesday’s UK manufacturing PMI fell more than expected too, with both reports showing cloudy outlooks.
Euro (EUR) Exchange Rates Fail to Capitalise on Sterling Weakness
The Pound has still been able to recover against the Euro, despite broad Brexit concerns, as investors haven’t had much reason to keep buying the Euro this week either.
While Tuesday’s Eurozone inflation projection came in slightly better than economists predicted, this week’s other Eurozone data has been underwhelming so far.
The latest Eurozone growth projections were weaker than expected, and manufacturing fell short of expectations in Germany in July indicating that Germany’s economy may be being impacted by fears of US trade protectionism.
Speaking of trade jitters, demand for ‘safe haven’ currencies has left the US Dollar (USD) with strong demand. As the US Dollar sees a reverse-correlation with the Euro, this has left the Euro even weaker.
Pound to Euro (GBP/EUR) Forecast: Services PMI Could Cause Late-Week Movement
While Bank of England (BoE) developments will dominate Pound to Euro (GBP/EUR) exchange rate movement during Thursday’s session, it’s still possible for some of Friday’s news to have an influence on the pair before markets close for the week.
Friday will see the publication of Markit’s final July services and composite PMI results, for the Eurozone and UK. The Eurozone composite PMI is projected to have weakened slightly in July.
As services make up the biggest chunk of Britain’s economic activity, the UK services report could be influential if it surprises investors. UK services are forecast to have slowed from 55.1 to 54.7.
Investors will also pay close attention to the Eurozone’s June retail sales results on Friday, which are forecast to have improved month-on-month.
If Thursday’s BoE news had little overall impact on the GBP/EUR exchange rate, these figures could decide whether the pair ends the week higher or lower.
Looking ahead, next week’s UK and Eurozone economic calendars will be a little quieter again. The only notable Eurozone data will be Germany’s June trade balance results.
However, major UK stats including trade balance and Gross Domestic Product (GDP) growth data could drive the Pound to Euro (GBP/EUR) exchange rate next Friday.