Pound Euro Exchange Rate News: GBP/EUR Rangebound Ahead of Central Banks’ Interest Rate Decisions

Modified: Thursday, 3 February 2022 10:35 BST - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Rangebound Ahead of Central Banks’ Interest Rate Decisions

GBP/EUR Muted Ahead of Central Banks’ Interest Rate Decision

The Pound Euro (GBP/EUR) exchange rate is trading in a narrow range today as investors await the interest rate decisions from the Bank of England (BoE) and the European Central Bank (ECB).

At the time of writing, the GBP/EUR exchange rate is trading at approximately €1.2014, with minimal market movement from today’s opening levels.

Euro (EUR) Mixed Amid ECB Decision and PMI Scores

The Euro (EUR) is rangebound against the Pound (GBP) ahead of the European Central Bank (ECB)’s interest rate decision scheduled this afternoon, with rates forecast to remain unchanged at 0%.

Previously, ECB have dismissed the idea of tightening monetary policy, however, with the current rising cost of inflation, the bank may have to reconsider their stance.

Bloomberg Economics says:

‘Although inflation is still likely to be around target by year-end, the forecast miss will colo[u]r the debate at the Governing Council’s February policy meeting.

‘We’re looking for President Christine Lagarde to repeat her assessment that rates are unlikely to rise in 2022. Failure to do so would be a significant shift, showing the hawks gaining ground in the policy debate.’

Moreover, the final PMI services for both Germany and the Eurozone showed limited growth in the sector this morning, printing at the forecast 52.2 and 51.1, respectively.

Pound (GBP) Trading Flat as BoE Interest Rate Decision Looms

The Pound (GBP) is subdued against the Euro (EUR) this morning ahead of the Bank of England (BoE)’s interest rate decision scheduled for midday.

The BoE is expected to raise rates from 0.25% to 0.5%, which many investors have already priced-in and is unlikely to cause undue movement in the Pound.

However, because the UK’s inflation rates recently reached a 30-year high, BoE may present a hawkish policy outlook which could boost Sterling’s potential.

Chris Williamson, the chief business economist at IHS Markit, said:

‘UK households have grown increasingly certain of the Bank of England hiking interest rates for a second meeting in succession, with expectations of tighter policy having spiked higher since last October as inflation worries took hold.

‘With the Omicron wave already ebbing and virus containment measures eased, there’s a good chance that the pace of economic growth will accelerate in coming months, which will likely add to speculation that further rate hikes are on the table as we head into spring.’

In addition, the UK’s final PMI services for January has exceeded expectations, printing at 54.1, higher than both the previous and forecast readings and shows an acceleration in growth in the industry.

GBP/EUR Exchange Rate Forecast: Interest Rate Decisions in Spotlight

Today, the interest rates decision and monetary policy outlooks for both the Bank of England (BoE) and the European Central Bank (ECB) will dominate investors’ attention.

During the rest of this week’s session, the Euro may be dented by a expected slowing of Germany factory orders in December, with order growth expected to decrease from 3.7% to 0.5%.

January’s PMI for Germany’s construction is also expected to show further contraction in the sector.

If both of these print true, it will show a slowdown in manufacturing demands and place pressure on the single currency’s potential.

The Eurozone is also scheduled to release disappointing retail sales for December, which are forecast to report a 0.5% contraction, following a robust 1% expansion in November.

Meanwhile, due to an absence of notable data during the rest of this week, the Pound is likely to be influenced by the UK political landscape.
Should Boris Johnson’s current position of power remain under fire, GBP may drop.

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TAGS: Pound Euro Forecasts