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Pound Euro Exchange Rate Outlook Rises as Bank of England Signals Negative Rates Still Far Off

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Pound Euro Exchange Rate Recovers as Bank of England (BoE) Decision Causes Relief

Updated 14:32 GMT 04/02/2021:

The Pound Euro (GBP/EUR) exchange rate saw a rebound in demand following the Bank of England’s (BoE) February policy decision today.

While the bank downgraded its UK growth forecasts and indicated that negative interest rate were not completely off the table, the Pound (GBP) still jumped in reaction to signs that negative rates would not come any time soon.

Some analysts believe negative interest rates are unlikely from the BoE. According to Silvia Dall’Angelo, Senior Economist at Federated Hermes:

If the base case of a strong recovery over 2021 – taking economic activity back to its pre-crisis levels by Q1 2022 – pans out, the Bank will be glad to keep negative policy rates idle in its toolbox.

(Originally published 10:33 GMT 04/02/2021)

Pound Euro Exchange Rate Slides from Half-Year-Best but Could Climb Again 

Investors have been selling the Pound Euro (GBP/EUR) exchange rate again since yesterday, as markets adjust positions ahead of today’s Bank of England (BoE) policy decision. Analysts predict the Pound (GBP) could see more bullishness if the bank is optimistic. 

Since markets opened this week, GBP/EUR has been trending with an upside bias. GBP/EUR opened the week at the level of 1.1293 and touched on a half-year-best of 1.1366 in the first half of the week. 

Yesterday though, GBP/EUR began to slide back from these best levels. At the time of writing on Thursday, GBP/EUR trends near the level of 1.1321. 

For now, markets are focused on the upcoming Bank of England decision. 

Pound (GBP) Exchange Rates Slide Ahead of BoE Policy Decision 

The Pound has been trending with a bullish bias for most of the week. It is due largely to hopes that Britain’s coronavirus vaccine programmes are ahead of other major economies, which could help Britain’s economy bounce back later in the year. 

However, investors pulled back on the Pound since yesterday. This is because the Bank of England (BoE) could still shift to a more dovish stance at today’s February policy decision. 

Part of the Pound’s recent strength is due to expectations for the bank to be generally optimistic, according to Yohay Elam at FXStreet: 

‘Bailey and his colleagues publish their Monetary Policy Report in addition to the rate decision, making this Thursday ‘super.’ Apart from commenting on negative rates, they are set to discuss the current state of the economy – and the tone is set to be upbeat.’ 

Euro (EUR) Exchange Rates Remain Unappealing on Eurozone Vaccine Jitters 

The Euro (EUR) has been one of the less appealing major currencies over the past week. Concerns over the EU’s difficulty in rolling out coronavirus vaccines are weighing heavily on the Eurozone outlook, leaving the Euro’s rivals more appealing in comparison. 

In particular, the Euro is less appealing in times of higher demand for its biggest rival the US Dollar (USD). The US Dollar has been boosted by profit taking this week, and the Eurozone’s vaccine outlook has only further boosted the US currency’s appeal. 

According to Lee Hardman, Currency Analyst at MUFG: 

‘The slow initial roll out of vaccines in Europe is also creating some concern that it risks undermining the outlook for global recovery in 2021 and boosting the relative appeal of the US Dollar,’ 

Pound Euro (GBP/EUR) Exchange Rates Focused on Bank of England (BoE) Decision 

The Pound to Euro exchange rate outlook could shift later today, when the Bank of England (BoE) holds its February policy decision. 

The BoE is not expected to make any changes to UK monetary policy. However, the tone the bank takes on Britain’s economy, particularly its coronavirus pandemic outlook, could be hugely influential. 

If the bank is more dovish than expected, the Pound could shed some of its recent strength. 

However, analysts expect a generally positive tone from the bank. Yohay Elam at FXStreet says that the Pound could surge if the bank takes negative interest rates off the table, for example: 

‘Saying no to negative interest rates may certainly be the right thing for pound bulls. The BoE is set to conclude its review of the topic and potentially rule it out for now.’ 

As for the Euro, it will continue to react to rival strength and Eurozone coronavirus developments. Tomorrow’s German factory orders data could also influence the Pound Euro (GBP/EUR) exchange rate.