November 7, 2019 - Written by James Fuller
STORY LINK GBP to EUR Exchange Rate Gives up Weekly Gains after Shock Bank of England (BoE) Split
For most of the week so far, the British Pound to Euro (GBP/EUR) exchange rate trended higher due to a combination of UK election hopes and concerns about the health of Germany’s economy amid broad recession fears. However, following a surprise shift in stance from Bank of England (BoE) officials today, the pair has quickly shed most of this week’s gains and as Britain’s economic outlook is perceived to have worsened.
Last week saw volatile movement in GBP/EUR, but the pair’s movement was ultimately modest as it edged higher from 1.1576 to 1.1585 throughout the week.
This week’s movements were more notable. GBP/EUR initially appeared to be on track to sustaining solid gains and the pair touched on a fortnight high of 1.1646 earlier in the week, but today’s Bank of England (BoE) news dragged the pair lower.
GBP/EUR currently trends closer to the level of 1.1570, having shed its gains over the last two weeks. However, the pair could be in for gains if upcoming Eurozone data disappoints.
GBP Exchange Rates Tumble as Bank of England (BoE) Policymakers Split on Interest Rates
Despite broad expectation that the Bank of England (BoE) would hold steady in its November policy decision today, and avoid making decisions as the bank awaited major developments in next month’s UK election and the Brexit process, the bank surprised markets.
Rather than agree unanimously to leave monetary policy frozen, some policymakers unexpectedly voted to cut UK interest rates during today’s policy decision.
The news came as a shock to investors. Bank of England interest rate cut bets rose and the Pound tumbled, as markets speculated that Britain may be closer to needing a rate cut than previously expected.
On top of this, the bank also indicated that it was leaving the door open for a potential interest rate cut in the foreseeable future, in case Brexit uncertainty continues to last longer than expected.
According to the bank’s meeting minutes:
‘The Committee would, among other factors, monitor closely the responses of companies and households to Brexit developments as well as the prospects for a recovery in global growth.
If global growth failed to stabilise or if Brexit uncertainties remained entrenched, monetary policy might need to reinforce the expected recovery in UK GDP growth and inflation.’
In his following press conference, BoE Governor Mark Carney said that the global economic outlook had darkened.
EUR Exchange Rate Gains Limited as German Recession Fears Persist
The Euro benefitted from Pound weakness today, but the shared currency’s gains have been limited amid a lack of strong Euro support elsewhere.
While some of this week’s Eurozone data beat expectations and caused light speculation that the Eurozone economic slowdown may have bottomed, the latest German data fell short.
Today’s German industrial production stats printed a sharper than expected contraction of -0.6%, which worsened market concerns that Germany’s economy would remain stuck in recession.
Following the weaker than expected German data, the European Commission also announced its latest economic forecasts, confirming that it had cut its growth forecasts for the Eurozone due to lasting concerns of slowing growth.
According to the European Commission report:
‘In order to assess the factors that are weighing on economic growth, one has to distinguish between factors reflecting long-term developments (e.g. a trend decline in productivity, ageing); supply shocks (e.g. US-China trade tensions, Brexit, and temporary oil supply constraints); cyclical features (e.g. the economic cycle in the US, Asian tech cycle); structural shifts (e.g. car demand going ‘greener’, transition in China); policy effects (e.g. fading fiscal stimulus in the US); but also elevated uncertainty (e.g. related to trade policy, Brexit, and geopolitical issues).’
GBP/EUR Exchange Rate Forecast: Bank of England Speculation Influential Once Again?
Amid already volatile speculation regarding the Brexit process and next month’s anticipated UK election, the Pound may now also be influenced by ongoing Bank of England (BoE)
Previously expected to wait and see while UK politics unfolded, the bank’s latest stance caused rate cut bets to rise, and the Pound may now be more sensitive to other upcoming news or data that could pressure the bank to cut rates.
Ahead of the end of the week, the Pound to Euro exchange rate could be influenced by tomorrow’s upcoming German trade data and French production stats.
Looking ahead to next week though, GBP/EUR may be influenced by both UK politics and economic data, on top of Eurozone data.
UK growth data will be published on Monday that could influence Bank of England speculation if it surprises. German and Eurozone growth and inflation stats due throughout the week could also be highly influential.
Of course, developments in Britain’s 2019 election campaigns will continue to influence the Pound to Euro exchange rate as well.
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TAGS: Pound Euro Forecasts