Euro Pound Sterling (EUR/GBP) Exchange Rate Rallies as BoE Hawk Turns Dovish

September 27, 2019 - Written by John Cameron

STORY LINK Euro Pound Sterling (EUR/GBP) Exchange Rate Rallies as BoE Hawk Turns Dovish

Euro Pound (EUR/GBP) Exchange Rate Rises as BoE Rate Cut ‘Quite Plausible’

The Euro Pound Sterling (EUR/GBP) exchange rate was left muted, and the pairing is currently trading at around £0.8891.

Sterling sentiment was left dampened on Friday as known Bank of England (BoE) hawk, Michael Saunders revealed that even if the UK avoids a no-deal Brexit, interest rates may still need to be cut.

Speaking to local businesses in Barnsley, Saunders stated:

‘If the UK avoids a no-deal Brexit, monetary policy also could go either way and I think it is quite plausible that the next move in the Bank Rate would be down rather than up.’

He argued that the high levels of uncertainty that could be caused by delaying the UK’s exit from the European Union would act as a ‘slow puncture’ to the already struggling economy.

Commenting on this, chief market analyst at XTB, David Cheetham stated:

‘The economy is still barely keeping its head above water. Throw in the almost universally acknowledged continued levels of heightened uncertainty on the political front […] and it is pretty shocking that a comment that a rate cut is ‘quite plausible’ has caused such as response.’

Euro (EUR) Rises as Eurozone Services Morale Improves

The single currency edged up on Friday afternoon despite data showing the bloc’s economic sentiment plummeted close to a five-year low.

Trade tensions weighed on the bloc’s economy, with the slump in confidence much larger than expected and a new sign of slowing economic activity in the Eurozone.

The Euro rose as the bloc’s largest economy suffered, with data showing confidence in German industry suffered the largest fall since October 2012.

Added to this, overall confidence in Germany fell to 99.4 from 100.6, below the long-term average for the first time in over six years.

However, morale in the services sector improved which calmed concerns that the downturn would spill over into the bloc’s largest economic sector where the majority of people are employed.

This likely provided an upswing of support for EUR, allowing the currency to rise against the weakened Pound.

British Consumers Left ‘Treading Water’

As Brexit pessimism increases data from GfK revealed British consumers’ confidence held up better than expected in September.

Despite the fresh political turmoil, GfK’s confidence index edged up from a six-year low to a better-than-expected -12.

Commenting on this morning’s data, Joe Staton, client strategy director at GfK noted:

‘British consumers appear to be treading water during this wait-and-see run-up to October 31. You can almost sense people are keeping their fingers crossed.’

However, GBP was left under pressure as a separate report revealed that there was a low level of Brexit preparedness amongst small firms.

The report from the Federation of Small Businesses showed that only 20% of those firms likely to be hit by a no-deal Brexit had taken action to attempt to reduce the risks.

Euro Pound Outlook: Will Weak UK GDP Weigh on GBP?

Looking ahead to next week, the Euro (EUR) could rise against the Pound (GBP) following the release of August’s German retail sales data.

If retail sales rebound, and rise higher than expected, single currency sentiment is likely to rise.

Meanwhile, Sterling is likely to be left under pressure following the release of final Q2 UK GDP data.

If the UK economy contracts more than expected in the three months to June, the Euro Pound (EUR/GBP) exchange rate is likely to rise.

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TAGS: Euro Pound Forecasts