Gains Forecast For GBP EUR Exchange Rate

Published: Wednesday, 12 February 2014 15:00 BST - Written by Frank Davies

STORY LINK Gains Forecast For GBP EUR Exchange Rate

The Bank of England’s Quarterly Inflation Report, published this morning, brought the anticipated adjustment to the UK central bank’s Forward Guidance statement of last August. At that time, the BOE was still advising investors that it would countenance an increase in domestic interest rates should the overall level of UK unemployment tumble to 7.0%. The intervening months have seen the total level of UK joblessness drop to 7.1% and the Bank has reacted by altering the rules of the game.

Governor Mark Carney revealed earlier that when UK interest rates do rise, they will do so gradually. He also re-affirmed his belief in the Forward Guidance policy, stating that it appears to be working in getting the message across to British economic participants that UK interest rates will remain low for a prolonged period of time.

Carney went on to confirm that the Bank will consider a raft of economic indicators in formulating its future monetary policy decisions and suggested that the BoE Base Rate would only rise to 2.0% by the year 2017.
The upshot of the comments from the Bank of England saw futures market traders slightly bring forward their estimated date for the next UK interest rate hike from May 2015 to April 2015. The Pound also gained as a result, sending the Pound euro exchange rate (GBP/EUR) to as high as 1.2206 earlier – the pair had been languishing below the 1.2000 threshold yesterday.

Gains for GBP EUR were accentuated by comments to the press from ECB policymember Benoit Coeure earlier confirming that the eurozone’s central bank is considering negative deposit rates ‘very seriously’. The fact that Europe’s reserve bank is looking to further loosen its monetary policy at a time when the Bank of England is considering a tightening of policy has led many analysts to forecast further near-term gains for GBP EUR.

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