Pound Euro (GBP/EUR) Exchange Rate Fluctuates amid Hawkish Remarks from BoE Ramsden

February 26, 2018 - Written by Minesh Chaudhari

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Fluctuates amid Hawkish Remarks from BoE Ramsden

BoE Deputy Governor Ramsden Points to Earlier-than-Expected Rate Hike – GBP/EUR Exchange Rate Climbs

The Pound Euro (GBP/EUR) exchange rate fluctuated on Monday, surging in the morning as markets reacted to hawkish comments from Bank of England (BoE) Deputy Governor Dave Ramsden, before suddenly paring recent gains into the afternoon.

Mr Ramsden, a known dove amongst the Monetary Policy Committee (MPC) surprised many in an interview over the weekend by calling for a rate hike sooner, rather than later, with accelerating wage growth in the UK being the primary justification.

Mr Ramsden said:

‘Relative to where I was, I see the case for rates rising somewhat sooner rather than somewhat later’.

This kind of sentiment is no isolated thing, with the central bank leaving many clues in recent weeks that they are preparing to raise interest rates a lot sooner-than-expected this year.

The most pertinent of these were comments from the bank’s Chief Economist Andy Haldane, who cited the UK’s record-low unemployment rate, accelerating wage growth and ever-high inflation rate as credible-enough reasons for tighter monetary policy measures.

Whether this will occur as early as May, however, remains to be seen.

ECB Draghi Calls for Patience on Monetary Policy – EUR Exchange Rates Fluctuate

Euro (EUR) exchange rates fluctuated into the afternoon as markets reacted to European Central Bank (ECB) President Mario Draghi’s speech on economic and monetary affairs.

Draghi’s speech largely reiterated what was already known, with the central bank President pointing to ongoing strength in the bloc’s economy, but also stressing that inflation is an ongoing problem – with consumer prices yet to show sustained signs of moving higher.

Draghi explained this as follows:

‘A comprehensive analysis by the Eurosystem has concluded that adverse cyclical factors have played a crucial role in explaining low underlying inflation. These notably consisted of dampened economic activity and high unemployment in the aftermath of the sovereign debt crisis, and subsequently subdued foreign demand and low oil prices’.

Markets seemed ultimately disinterested in this news, however, with the Pound Euro (GBP/EUR) exchange rate pulling back in caution ahead of Federal Reserve Chairman Jerome Powell’s testimony before the House Financial Services Committee.

This will be Mr Powell’s first appearance since being sworn in as the central bank’s new leader, with many analysts expecting him to use the opportunity to reveal sentiment on monetary policy, or indeed the state of the US economy as a whole.

Whilst Mr Powell is not expected to deviate too drastically from Janet Yellen’s approach, markets are expecting him to acknowledge the current strength of the US economy, and with many analysts now pricing in a rate hike as early as March from the US Fed (putting the number of planned rate rises up to 4 this year), it is highly likely that he too will prove hawkish.

Indeed, with unemployment being at record lows, wage growth starting to accelerate and private sector optimism soaring on the back of US President Donald Trump’s latest tax reform measures, many are cautious that the ‘Greenback’ could soon see another monetary policy-influenced rally, an expectation that siphoned demand away from the Euro and the Pound.

Pound Euro (GBP/EUR) Exchange Rate Forecast: UK PM Theresa May’s Brexit Speech Looms

Looking ahead, the Pound Euro (GBP/EUR) exchange rate could see even more volatility this week as markets react to a speech from UK Prime Minister Theresa May, with the PM expected to outline the Conservative Party’s position and hopefully provide insight into progress (if any) that has been made.

Markets will be paying particular attention to any indication of clarity for businesses regarding the UK’s future relationship with the EU post-Brexit, with positive revelations liable to spur investment and potentially bolster Sterling.

Conversely, a lack of demonstrable progress in the speech could leave Sterling floundering as markets grow increasingly anxious that the March plan for trade talks is getting increasingly delayed.

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