Bank Of England Policy Decision Set To Shape GBP EUR Exchange Rate

Published: Thursday, 7 February 2013 09:00 BST - Written by David Woodsmith

STORY LINK Bank Of England Policy Decision Set To Shape GBP EUR Exchange Rate

The bad news stories keep on coming for the Pound Sterling; yesterday’s session brought the release of a deeply worrying report from the widely-respected Institute of Fiscal Studies, which predicted that the UK’s borrowing requirement for 2014-15 will be a mammoth £64bn higher than previous estimates. The only alternatives to this huge borrowing increase for Britain’s beleaguered coalition government will be to deepen existing plans for spending cuts or to increase taxation.

The afternoon publication of the IFS report saw the Pound give up some of the gains which it had enjoyed against the euro during the early part of the trading day. GBP EUR had briefly poked its head above the 1.1600 level during the middle part of the session, however by the end of yesterday’s European equities sessions, the pair had peeled back down towards the middle part of the 1.1500s once again.

The Pound is likely to feature strongly on the radar of currency market participants once again today, with the Bank of England making its latest policy announcement at midday. Given the disappointingly soft tone of Q4 UK GDP data, released last month, and December’s Retail Sales numbers, a reasonable minority of analysts are anticipating an increase in the BoE’s asset purchase scheme later today. This dynamic means that a ‘no change’ decision by the Bank’s monetary policy committee could be beneficial for Sterling, while an increase to QE would be likely to trigger renewed selling pressure on the Pound.

The Pound will be afforded further direction when January’s NIESR GDP estimate is released at 1500hrs today. An improvement on December’s annualised -0.3% showing will be required if the Sterling is to claw back any of the losses which it has incurred against the euro since the turn of the year.

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