Pound Euro Exchange Rate News: GBP/EUR Firms ahead of BoE’s Next Rate Hike Decision

Modified: Tuesday, 20 September 2022 17:05 BST - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Firms ahead of BoE’s Next Rate Hike Decision

GBP/EUR Exchange Rate Firms ahead of BoE Meeting

The Pound to Euro (GBP/EUR) exchange rate strengthened on Tuesday as GBP investors became increasingly sure of a 75bps rate rise at the Bank of England’s (BoE) interest rate decision.

At time of writing the GBP/EUR exchange rate traded at around €1.1455, which was roughly up 0.4% from Tuesday’s opening levels.

Pound (GBP) Rises amid Rate Hike Expectations

The Pound (GBP) strengthened during Tuesday’s trade as expectations of a hawkish move at the BoE’s next meeting boosted the UK currency.

Most investors are expecting a 75bps interest rate hike. This comes after other central banks have enacted increasingly aggressive policy tightening to curb inflation.

While the BoE was one of the first central banks to start raising interest rates, other institutions have overtaken the bank in recent months by enacting steeper rate hikes. Many analysts now expect the BoE to move more aggressively to prop up the Pound and restore trust.

However, there are some policymakers that fear the impact rising interest rates might have on the economy as recession looms.

The UK seems set for a drawn-out period of negative growth and high inflation, and rising interest rates will further choke off the economy. These fears may have severely capped GBP’s gains.

Euro (EUR) Slumps amid Downbeat Market Mood

The Euro (EUR) on the other hand faced headwinds amid a downbeat market mood and troubling news out of Ukraine.

The Euro was impacted by its negative correlation to the US Dollar (USD), which caused the single currency to fall during Tuesday’s trade.

USD trade was underpinned by a downbeat market mood, which strengthened the favourability of the safe-haven ‘Greenback’. The currency was also bolstered by eager US Dollar investors ahead of the Federal Reserves interest rate decision this week.

Market mood was weighed down by developments in the Ukrainian war. Four Russian-occupied territories within Ukraine have declared they will take part in referendums over the weekend to join Russia.

Volodymyr Saldo, the Russian-appointed head of Kherson, said that joining Russia would ‘secure our region’ and be a ‘triumph of historical justice’.

If the referendums work and the four territories join Russia, then any counterattack carried out by Ukraine in these areas will be seen as an act of war, leading to a likely escalation in the conflict.

This would be terrible for the Eurozone economy, which has been severely damaged by Russia’s invasion of Ukraine.

GBP/EUR Exchange Rate Forecast: Sterling to Keep Strengthening ahead of BoE Meeting?

Looking ahead, the Pound Euro exchange rate movement is likely to be limited ahead of the BoE interest rate decision on Thursday, amid a lack of notable data.

A speech from European Central Bank (ECB) President Christine Lagarde could impact the Euro on Tuesday evening. If Lagarde hints at more aggressive interest rate rises, then the Euro could strengthen. However, if she sounds dovish or worried about the Eurozone economy then the single currency could weaken.

Any developments in Ukraine could continue to impact the Euro. If fears grow over possible escalation, then the Euro could continue to fall under pressure.

On Thursday the BoE decision will likely drive most movement. Markets are increasingly expectant of a 75bps hike, which would likely boost the Pound. However, a smaller 50bps hike could dent Sterling. In addition, investors will be keen to see if the BoE has changed its economic outlook.

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TAGS: Pound Euro Forecasts