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Pound Euro Exchange Rate to Strengthen on Bold BoE Rate Hike?

Pound and Euro coins on a five-Pound note.

GBP/EUR Exchange Rate Wavers on Ukraine fears and BoE Rate Hike Expectations

The Pound Euro (GBP/EUR) exchange rate fluctuated wildly ahead of the Bank of England’s (BoE) interest rate decision and renewed fears out of Ukraine.

At time of writing the GBP/EUR exchange rate is around €1.1419, relatively unchanged from this morning’s opening levels.

Pound (GBP) Fluctuates ahead of Key Rate Decision

The Pound enjoyed mixed success against its peers today as markets brace for the Bank of England’s (BoE) interest rate decision this week.

As the central bank maintains its priority in bringing inflation down to its target level of 2%, a 75bps rate hike is widely expected. Despite inflation softening for the first time since December 2021 last week, core inflation continues to soar. A seventh consecutive interest rate hike will bring the key rate up to 2.5%, the biggest increase since 1989.

Meanwhile, Brexit issues appear once again as Prime Minister Liz Truss confirmed no trade deal will be struck with the US as Truss visits President Joe Biden to discuss global security matters instead. With Brexit promising new trade deals, the delicate matter of the Northern Ireland protocol has proved to be a sticking point between the UK and the US.

Elsewhere, amid the ongoing energy crisis and the government’s intervention, Truss has reassured the cost will not be passed onto householders. With energy bills ever soaring, Truss has stated that paying higher energy bills will be worth paying. By weaning the UK off cheap oil and gas from foreign aggressors, energy security will not be tied to other nations.

Looking ahead, all eyes will be on the postponed BoE interest rate hike decision. If a 75bps rate hike becomes a reality, Sterling could see some much-needed demand.

Euro (EUR) Under Renewed Pressure Over Ukraine Conflict

Meanwhile, the Euro is struggling to find much demand today as a thin data calendar left the Euro exposed to global market sentiment.

The Ukraine invasion is back in the forefront of investors’ minds as concerns grow of Russia preparing full military mobilisation and an official declaration of war on Ukraine. Proxy Russian authorities in Russian controlled Ukrainian territories are said to be planning to hold referendums this weekend.

Donetsk, Kherson, Luhansk, and Zaporizhzhia are planning to hold a referendum on joining the Russian federation. Fears of a sham vote could see the occupied territories under Russian control, potentially leading to Kremlin mobilising military and a declaration of war. Any further negative news out of Ukraine and the Euro could weaken considerably.

Looking ahead, a speech from European Central Bank (ECB) President Christine Lagarde could influence the Euro. A hawkish stance from Lagarde could bolster the single currency but a dovish turn could see the Euro slump.

Elsewhere, with little data on the calendar for the Eurozone, attention will shift to the Federal Reserve interest rate decision on Wednesday. The Euro remains just above parity with the US Dollar, and its negative correlation with the ‘Greenback’ could see parity challenged once again if the Fed hikes by 75bps.

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