GBP/EUR Exchange Rate Rises as the BoE is Expected to ‘Walk a Tightrope’ on Economic Policy
The Pound Euro (GBP/EUR) exchange rate rose this morning ahead of the Bank of England’s (BoE) interest rate decision and commentary on the state of the UK economy. The pairing is currently trading around €1.16.
Jim Reid, a strategist at Deutsche Bank, said:
‘[The BoE is expected to] walk a tightrope between talking up the recovery whilst avoiding too hawkish a message that would see an unwarranted tightening in financial conditions.’
Naeem Aslam, chief market analyst at Avatrade, also weighed in saying that the bank would ‘need to embrace the remarkable progress on the vaccine front, and how that has improved the economic health’.
As a result, GBP investors are remaining largely cautious, but there is a hint of optimism in UK markets buoying the GBP/EUR exchange rate today.
Earlier this week saw the BoE’s Governor Andrew Bailey say that he was now ‘more positive’ about Britain’s economic outlook, thanks to the Government’s extensive Covid-19 vaccine rollout.
We could see the Pound Euro exchange rate head higher this afternoon if the BoE is notably bullish in its monetary policy summary.
Euro (EUR) Dips as Concerns Grow Over the EU’s Covid-19 Situation
The Euro (EUR) benefited from weakness in its largest competitor, the US Dollar, after the US Federal Reserve reassured global markets after hiking its forecast for US growth this year to 6.5%.
Consequently, demand for the Euro has increased, but not enough to boost the Euro Pound exchange rate.
Growing concerns over the European Union’s (EU) Covid-19 situation, which looks set for a third-wave of infections, is weighing on confidence in the Eurozone’s ability to recover its economy in the months ahead.
Today also saw a speech from the European Central Bank’s (ECB) President Christine Lagarde, who announced that she would ramp up the Eurozone’s bond purchases to aid the bloc’s economic recovery.
Analysts at Bloomberg commented on the speech:
‘The President also urged the EU’s member states to finalize their spending plans in the coming weeks. National governments are currently in talks with the European Commission on how to spend the money from the joint fund, and some submissions have been judged inadequate so far. Plans are due by the end of next month with funds to be disbursed in the summer.’
GBP/EUR Exchange Rate Outlook: Could Improving UK Consumer Morale Boost Sterling?
Pound (GBP) traders will be looking ahead to tomorrow’s release of the UK GfK Consumer Confidence data for March.
Any improvement in consumer morale this month could provide a boost for the GBP/EUR exchange rate.
The Euro (EUR) will remain sensitive to the EU’s Covid-19 situation this week. If cases of the virus continue to rise in Europe, then we could see the announcement of further lockdown restrictions.
As a result, the Pound Euro (GBP/EUR) exchange rate could head higher as the outlook for the Eurozone’s economy deteriorates.