Pound Euro Exchange Rate Climbing on Bank of England (BoE) Comments
Despite a lack of solid UK data in recent sessions, the Pound Sterling to Euro (GBP/EUR) exchange rate has been climbing this week. This is largely due to offset concerns about the possibility of negative interest rates in the UK.
After opening this week at the level of 1.1100, GBP/EUR briefly dipped and has since been advancing. As of Wednesday morning, GBP/EUR has recovered most of last week’s losses and trends in the region of 1.1215.
Last week, GBP/EUR opened at the level of 1.1231 and even touched on a 4-month-best of 1.1260. GBP/EUR is now fairly close to those highs again.
The Pound’s (GBP) recovery is a little easier thanks to a lack of drive in the Euro (EUR).
Pound (GBP) Exchange Rates Rebounding as Negative Rate Cut Fears Soften
For much of the past week, investors have been selling the Pound that the Bank of England (BoE) could introduce negative interest rates sometime soon.
However, in a speech yesterday BoE Governor Andrew Bailey expressed notable hesitance to introduce negative rates. This left markets more confident that if they are introduced, it may not be for a while.
According to Neil Jones, Head of FX at Mizuho:
‘There were some expectations in the market that the BoE could soon move in this direction (of negative rates),
These headline comments have a put a dampener on negative rate expectations and participants are buying Sterling back.’
As a result, the Pound continues to recover from recent losses today.
Euro (EUR) Exchange Rates Pressured by Rival Movement
The Euro (EUR) has been driven by movement in rival currencies in recent weeks. With the Pound recovering this week and the US Dollar (USD) seeing some rebound of its own, the Euro has seen little strength.
Eurozone data continues to be decent in recent sessions. Today’s German wholesale prices stats beat forecasts, coming in at 0.6% month-on-month.
However, as major Eurozone economies will likely continue to suffer with coronavirus restrictions for at least another month, the Eurozone outlook is not strong enough to boost Euro demand.
Pound Euro (GBP/EUR) Exchange Rate Could Keep Recovering if UK Data Impresses
If UK negative interest rate bets continue to soften, the Pound could be in for further recovery. While Britain’s coronavirus situation is highly concerning, signs of economic resilience in Britain could also facilitate a bigger recovery.
Friday’s session will see the publication of Britain’s November production and growth rate results. They will give markets a better idea of how Britain’s economy weathered the second coronavirus lockdown in November.
If the data beats expectations, it could also boost hopes that UK economic activity will weather the current, third lockdown.
As for the Euro, it will continue to be driven largely by movement in rival currencies the Pound and US Dollar.
If the US Dollar continues to rebound, the Euro will likely be a little weaker itself. Of course continued Pound recovery will also weigh on the Euro.
The Pound Euro exchange rate could also be influenced by any upcoming Bank of England (BoE) or European Central Bank (ECB) comments.