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Pound to Euro Exchange Rate Fails to Hold Gains, Markets Look Ahead to Bank of England (BoE)

Bank of England

Pound to Euro Exchange Rate Sheds This Week’s Gain Attempts as UK Uncertainties Persist 

A lack of strong support for the Pound (GBP) has left the Pound Sterling to Euro (GBP/EUR) exchange rate faltering again. A combination of coronavirus and Brexit uncertainties, as well as anxiety ahead of tomorrow’s Bank of England (BoE) news, is keeping pressure on Sterling. 

Last week saw GBP/EUR shed its June gains, closing at the level of 1.1140. 

Since markets opened this week, GBP/EUR has once again been trending with an upside bias. Yesterday, GBP/EUR touched above the key level of 1.12, but quickly retreated again. 

At the time of writing, GBP/EUR was trending a little closer to the week’s opening levels once more after tumbling. 

Investors are likely to remain anxious on the Pound over the coming day. Tomorrow’s Bank of England policy decision is highly anticipated. 

Pound (GBP) Exchange Rates Fail to Hold Ground despite Strong UK Data 

UK data published this week so far has, on the outset, seemed fairly optimistic. 

Yesterday’s UK job market report showed that the key unemployment rate had unexpectedly remained at 3.9%. It was forecast to worsen due to the coronavirus pandemic

However, analysts noted that the figure didn’t reflect the huge instability in the job market. Analysts predict that Britain’s job market could get much worse before it gets better. 

Today’s UK inflation data did little for Sterling either. Inflation figures came in fairly close to expectations. According to Analysts at ING, Brexit uncertainty remains the key issue keeping pressure on Sterling: 

‘The dip in May UK Inflation was in line with expectations and is unlikely to weigh on Sterling via a more dovish market expectation channel. The key for negative rate prospects remains the UK-EU trade saga and we don’t expect much progress to be made in coming weeks.’ 

Euro (EUR) Exchange Rates Resilient, Benefitting from Rival Weakness 

Investors continue to find the Euro fairly appealing. 

The shared currency’s outlook is generally optimistic, due to the EU’s seemingly effective handling of the coronavirus pandemic. Impressive measures from the European Central Bank (ECB) have also helped the Euro. 

These factors have made it easier for the Euro to capitalise on the weakness of rival currencies. This includes the Pound, as well as the US Dollar (USD) which has something of a negative correlation with the Euro. 

According to Analysts at ING, the Euro’s bullishness is running out of steam but it will continue to benefit from rival weakness: 

‘The positive effect of European Central Bank measures on the Euro is now fully in the price and another leg of USD weakness is needed to send EUR/USD above 1.15. This does not appear imminent at this point.’ 

Pound to Euro (GBP/EUR) Exchange Rate Outlook Awaits Bank of England (BoE) 

The Pound is unlikely to see fresh strength against the Euro in the coming days, unless tomorrow’s Bank of England (BoE) policy decision is surprisingly optimistic. 

The BoE is expected to maintain a cautious stance on UK monetary policy. Many also expect the BoE will indicate that its quantitative easing (QE) programme is being ramped up. 

However, concerns persist that the BoE could begin to hint that negative interest rates are possible. 

In the event that the BoE hints at negative rates, the Pound could see a fresh bout of weakness. This would only be compounded if ongoing Brexit negotiations don’t see any optimistic developments. 

As for the Euro, it could be influenced by European Central Bank (ECB) comments and a bulletin expected tomorrow. 

Of course, as the Euro remains appealing overall, the Pound to Euro (GBP/EUR) exchange rate’s potential for gains may be limited even if the Pound rises.