GBP/EUR Lifted by BoE Rate Speculation
The Pound Euro (GBP/EUR) exchange rate is pushing higher this week as markets continue to speculate on the possibility of the Bank of England (BoE) accelerating its plans to raise interest rates.
At the time of writing GBP/EUR has jumped 0.2%, with the pairing striking a new two-week high on the back of some hawkish BoE remarks.
Pound (GBP) Strengthens as Calls for Rate Hikes Rise
The Pound looks set to punch higher against the Euro this week as investors focus on the possibility of the BoE accelerating the pace of monetary tightening over the next couple of years.
The bank currently looks on track to hike rates during its May policy meeting, with investors beginning to speculate on the possibility of the BoE delivering up to two rate hikes in 2018.
This sentiment was further bolstered by remarks from BoE policymaker Ian McCafferty this morning as he suggested that a stronger than expected pick up in wage growth, would be cause for increasing the pace of rate hikes.
In an interview with Reuters, McCafferty said
‘It’s not wages suddenly bursting away, but it gives you a modest upside risk. We shouldn’t dally when it comes to tightening policy modestly.’
ECB Policy Speculation to Boost Euro (EUR)?
At the same time the BoE is not the only central bank in focus this week as comments from the European Central Bank’s (ECB) Ewald Nowotny, suggest the ECB may also be reconsidering its policy outlook.
Speaking in London today Nowotny said that it is important for the bank to begin planning for the ‘gradual normalisation of monetary policy’ suggesting that it must be done before it is ‘too late’.
However it remains unclear whether the ECB as a whole is ready likely to strike a more hawkish tone just yet, with the Euro likely to remain capped as the focus remains on winding up its stimulus programme.
GBP/EUR Forecast: UK Trade Deficit to Narrow?
Looking ahead the GBP/EUR exchange rate may tick higher later this week with the release of the UK’s latest trade balance figures.
Economists forecast that Wednesday’s data will show that the domestic trade deficit narrowed from -£3bn to -£2.6bn in February, possibility helping to bolster Sterling sentiment.
Conversely the publication of the accompanying production figures could undermine the trade figures, as analysts predict that industrial output will have tumbled from 1.3% to 0.4% over the same period.
Meanwhile a speech by ECB President, Mario Draghi is sure to prompt some movement in the Euro tomorrow, with the single currency likely to weaken if he remains cautious in his outlook for monetary policy.
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