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Will GBP/EUR Weaken on Cautious BoE Forward Guidance?

Pound coin on a Euro banknote

Pound Euro (GBP/EUR) Exchange Rate Narrows as Investors Anticipate BoE Rate Hike

The Pound Euro (GBP/EUR) exchange rate is narrowing this morning, as GBP investors remain uncertain over future monetary policy.

At the time of writing, GBP/EUR is trading at around €1.1309, showing little movement from the morning’s opening rates.

Pound (GBP) to Weaken on Cautious BoE?

The Pound (GBP) could weaken later today, if the Bank of England (BoE) opts for a more cautious set of forward guidance.

At noon, the BoE are scheduled to publish their latest interest rate decision. With tightening beginning to have an effect on economies across the globe, further rate hikes could prove to be a dangerous proposition.

As such, the expectation is leaning towards more dovish guidance, which could weaken Sterling later today. However, if the BoE remain hawkish, the Pound could strengthen.

Tomorrow, February’s retail sales data is due to print. With a cool expected from 0.5% to 0.2%, GBP could weaken as signs of a slowdown in the UK’s retail sector weigh on the UK’s economic outlook.

However, an upbeat reading from March’s services PMI could reverse any weakness. The UK’s service sector index is forecast to remain in growth, which could lift GBP.

Euro (EUR) to Rally on Service Sector Growth?

The Euro (EUR) may remain subdued over the rest of today’s trade, as a lack of macroeconomic data leaves the single currency open to external factors.

With the market mood fluctuating following yesterday’s Federal Reserve interest rate decision, the safer Euro may lack appeal against other currencies. However, persistent bets on further interest rate hikes from the European Central Bank (ECB) may underpin the common currency.

Tomorrow, the latest PMIs for the Euro’s private sector are due to print. With the indexes for March forecast to show that the bloc’s service sector remained in growth, the single currency could rally.

Furthermore, a similar showing from Germany’s private sector indexes could add an extra boost to EUR exchange rates.

However, with the contraction indexes forecast to remain in contractionary territory, these gains may be capped by fears over the German and Eurozone economy.

Elsewhere, if ECB policymakers offer comments on inflation in the Eurozone, they could reiterate the ECB’s hawkish stance. As such, rate hike bets could be elevated, which would bring strength to the single currency.

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