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Pound Euro (GBP/EUR) Exchange Rate to Sink on BoE Comments?

Horse statue in front of Bank of England

Pound Euro Exchange Rate to Face Headwinds if BoE Strikes Dovish Tone

The Pound Euro (GBP/EUR) exchange rate is climbing this morning as Brexit headwinds ease and German retail data reveals weaker-than-expected sales growth.

At the time of writing, GBP/EUR is trading at €1.1764, up 0.3% from today’s opening levels.

Pound (GBP) to Slide on Central Bank Headwinds?

The Pound (GBP) is trading up against the majority of its peers this morning, as market sentiment improves following yesterday’s Covid-inspired flight to safety.

Safe-haven currencies shot up earlier this week following comments from Moderna’s chief executive warning that their vaccine may be less effective against the new Covid ‘Omicron’ variant.

Subsequently, Pfizer’s co-founder and chief executive Ugur Sahin has commented that ‘there’s no reason to be particularly worried’ – that the team behind the Pfizer vaccine are confident it will provide substantial protection.

Upbeat Brexit developments are also supporting the Pound – France now appears willing to smooth migration tensions with the UK following the death of 27 refugees in the channel last week. French Prime Minister Jean Castex wrote to Johnson yesterday in a bid to achieve a ‘balanced’ arrangement.

Looking ahead however, headwinds may be on the horizon if Bank of England (BoE) Governor Andrew Bailey strikes a dovish tone this afternoon. His colleague Catherine Mann commented earlier in the week that it is premature to talk about increasing interest rates.

Euro (EUR) to Face Pressure on Lack of Further Data?

The Euro (EUR) is trending down today having amassed support yesterday on higher EU inflation and hawkish comments from outgoing European Central Bank (ECB) Governing Council member Jens Weidmann.

Weidmann remarked that the ECB should be wary of maintaining its very loose policy for longer than the price outlook dictates, as ‘the more broadly central banks interpret their monetary policy mandate, the more likely they are to become entangled in politics.’

Subsequent bullish trading has lost momentum, however, as EU data misses expectations and German retail sales disappoint. Sales were forecast to rise 1% in October, but instead contracted as supply bottlenecks intervened.

A survey by the HDE retail association hinted at headwinds prior to today’s release, showing that only 20% of 350 companies asked were satisfied with Christmas sales so far. November and December are normally the strongest months of the year for retailers.

Unless external factors can buoy Euro sentiment, EUR could fall further today against its peers.

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