Pound Euro Exchange Rate News: GBP/EUR Climbed as BoE Hikes Rates to Highest Level Since 2008

May 11, 2023 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Climbed as BoE Hikes Rates to Highest Level Since 2008

Pound (GBP) Rallied as BoE Hikes Cash Rate to Highest Level since 2008

The Pound (GBP) firmed on Thursday as the Bank of England (BoE) continued their battle against inflation as they raised the interest rate to its highest level in 15 years.

The central bank met expectations and raised the interest rate for the 12th consecutive time, accruing 440bp of tightening since the current cycle began in December 2021. With inflation remaining sky-high at 10.1%, the BoE were left with no choice but to continue raising the interest rates.

Meeting market predictions, the central bank opted to raise the interest rate by 25bps, with two policymakers voting to keep the rates unchanged. Both MPC members Sylvana Tenreyro and Swati Dhingra expectedly remained dovish.

Euro (EUR) Quiet amid Mixed Market Mood

Meanwhile, the Euro (EUR) failed to find a clear direction amidst a lack of economic data. Investors remain cautious over the European Central Bank’s (ECB) monetary policy going forward, amid mixed recent signals from policymakers.

Also weighing on the Euro is the negative correlation it shares with the US Dollar. With the latter returning to strength after weaker-than-expected US inflation data, the Euro grew weaker. With market mood wavering, the safe-haven US Dollar helped claw back lost ground, denting the Euro.

After a dovish tilt from the ECB at the last policy meeting, EUR investors have been uncertain over the direction the central bank are taking. Despite inflation remaining above the target rate, policymakers hinted that a pause could be on the way.
However, ECB President Christine Lagarde, and several ECB members, have since refuted these claims. The uncertainty doesn’t appear to be inspiring much confidence in EUR investors.

GBP/EUR Exchange Rate Forecast: Hawkish BoE to Bolster Sterling?

Looking ahead, the Pound Euro exchange rate could see further movement as the market and investors continue to digest the latest interest rate decision from the BoE. The vote split will be closely dissected, along with comments from BoE Governor Andrew Bailey. With inflation remaining high, core inflation proving sticky, further tightening could be on the cards, potentially boosting the Pound.

Meanwhile, Euro investors will be looking towards speeches from ECB members Isabel Schnabel and Luis de Guindos for further impetus. Being one of the more hawkish members of the ECB, Schnabel could boost the Euro if she mirrors her comments from earlier in the week. Speaking at an event in Frankfurt, Schnabel was bullish in her forward guidance:

‘Based on today's data, there is no doubt that we need to do more to bring inflation back to our 2% target in a timely manner. We will raise interest rates until there are signs that core inflation will fall on a sustained basis.’

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TAGS: Pound Euro Forecasts