Today's Euro to Pound Sterling Exchange Rate Tumbles to 2-Month Low on BoE Comments; EUR/GBP @ 0.878

Modified: Saturday, 16 September 2017 12:23 BST - Written by Minesh Chaudhari

STORY LINK Today's Euro to Pound Sterling Exchange Rate Tumbles to 2-Month Low on BoE Comments; EUR/GBP @ 0.878

The euro to British pound exchange rate is now trading at the lowest level since for two months, quoted at £1 = 0.87890 euros.

"We accelerated lower on the MPC news and are testing more important pivot support in the 0.8850-0.8750 region. This pivot is part of the broad medium-term range between 0.8250 and 0.8415. Momentum studies still suggest a limited downside for at least a rebound, but there is little sign of this from price action at the moment. Resistance on rebounds lies at 0.8980-0.9050." Lloyds

Amid a lack of fresh reasons to buy the single currency, the EUR/GBP has plummeted this week.

The Pound’s recent recovery efforts were given a major boost by the latest Bank of England (BoE) news.

After a couple weeks of modest losses, EUR/GBP has seen one of its biggest one-week-falls since the first quarter of 2017. The pair opened on Monday at the level of 0.9121 and has since fallen to near a two-month-low of 0.8779.

EUR Fails to Hold on European Central Bank Uncertainty

The European Central Bank (ECB) may get its wish for the overvalued Euro to weaken, as the shared currency has seen poor performance in recent sessions.

As August Consumer Price Index (CPI) data from Germany, Spain, Italy and France largely met expectations, the market outlook for Eurozone inflation is unchanged.

ECB officials, such as Benoit Coeure and chief economist Peter Praet, have indicated that the ECB is likely to leave monetary policy accommodative for quite some time in order to limit potential obstacles caused by low inflationary pressure or a strong Euro.


As a result, while the ECB is expected to be preparing to begin withdrawing its aggressive quantitative easing (QE) over the next half a year, hawkish investors hoping for the ECB to tighten Eurozone interest rates too have been disappointed.

Overall though, the Euro outlook remains strong. Analysts believe the ECB will need to be careful with how it frames QE announcements in order to prevent the shared currency from becoming even stronger.

According to Peter Vanden Houte, Eurozone chief economist at ING;

‘The tricky exercise for the ECB is to actually announce that they will continue buying in 2018, but that it will peter out gradually these purchases,

They have to present it in a way that it is perceived by the markets as dovish instead of hawkish.’

GBP Soars on Hawkish Bank of England (BoE) Comments

The Pound has been surging since Thursday’s Bank of England (BoE) policy decision, due to a shift in tone in the bank’s meeting minutes, as well as hawkish statements from BoE officials.

While the bank confirmed that monetary policy would be left frozen as expected, the minutes hinted that rates may rise at a faster pace than markets expect if Britain’s economy maintains its current level of strength.

Sterling was boosted even further on Thursday evening, when BoE Governor Mark Carney surprised markets with comments that interest rates may even need to rise in the coming months.

He stated that most Monetary Policy Committee (MPC) members including himself were aware that policy may need to be adjusted in order to keep inflation in check.

Lastly, Sterling shot higher once again during Friday trade, amid fresh comments from BoE official Gertjan Vlieghe.

Vlieghe not only reflected the view that a UK rate hike could be approaching, he hinted that the bank may even need to hike rates more than once. He stated;

‘It’s obviously more than unwinding last August. We are making that judgement over a three-year period, so it will depend on how the data evolves.’

Due to the multiple surprising and unexpectedly hawkish tones from BoE officials in recent sessions, bets of a 2017 interest rate hike have jumped. Markets now believe that a rate hike could happen as soon as November.

EUR/GBP Forecast: Eurozone Inflation Report Ahead

It’s unlikely the Euro to British Pound exchange rate will gain back the past week’s losses any time soon, unless upcoming Eurozone inflation data is much better than expected.

Monday will see the publication of the Eurozone’s final August Consumer Price Index (CPI) results.

Projections indicate that yearly inflation will have improved from 1.3% to 1.5% but yearly core inflation will remain at 1.2%. Monthly inflation is forecast to lighten from -0.5% to -0.2%.

If the core inflation rate beats expectations, this could help EUR/GBP to recover some of its recent losses.

However, Sterling is likely to continue to see strong performance overall. The currency’s outlook has notably improved as investors speculate a UK interest rate hike could happen in the coming months.

Sterling strength could be limited if Wednesday’s UK retail sales report disappoints, but otherwise EUR/GBP could continue to slide.

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