Bank of England (BoE) policymakers voted to keep rates unchanged as was expected by the vast majority of traders. However, the corresponding minutes were more dovish than was hoped with all but one policymaker voting to keep rate on hold. Many policymakers highlighted the lack of inflationary pressure from sustained low oil prices as the primary reason for leaving policy accommodative. Others also highlighted the absence of sufficient wage growth as a concern. Sterling pundits will likely be resigned to the fact that the BoE will keep policy unchanged throughout 2016.
The Euro to Pound Sterling (EUR/GBP) exchange rate softened by around -0.6% to trend in the region of 0.7213 during Thursday’s European session.
Euro to Pound Sterling (EUR/GBP) Exchange Rate Cools after Liikanen Warns of Downside Inflationary Risks
Despite a complete absence of influential domestic data the Euro softened versus many of its currency rivals today. This is partly the result of comparative US Dollar strength as mounting confidence regarding the likelihood of a Federal Reserve rate hike next week weighs on demand for the negatively correlated Euro. Also having a detrimental impact on demand for the common currency today was a speech from European Central Bank (ECB) governing council member Erkki Liikanen. Finland’s central bank Governor warned of downside risks to inflation and growth; parroting ECB President Draghi’s assertions that the Frankfurt-based central bank will do everything within its power to stoke Euro-area price pressures.
‘The growth and inflation outlook is still subject to downside risks. The Governing Council is willing and able to act by using all the instruments available within its mandate if warranted in order to maintain an appropriate degree of monetary accommodation. The (almost 2 percent) inflation target of the ECB is symmetric. This means that monetary policy responds to both too slow and too high inflation rates with equal vigour.’
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7215.
Pound Sterling to Euro (GBP/EUR) Conversion Rate Holds Gains as Traders Predict Hawkish BoE Minutes
Although the vast majority of traders don’t expect the Bank of England (BoE) to make any alterations to monetary policy at this time, especially after the most recent inflation report warned that price pressures would remain below-target throughout 2016, there is a bubbling expectation that the corresponding minutes for today’s meeting will be decidedly more hawkish than the most recent iteration. Should another policymaker swell the ranks of the solitary dissenter, Ian McCafferty, the Pound is likely to strengthen considerably.
Thus far today British economic data produced mostly disappointing results but had minimal impact on the Pound with trader focus dominated by the forthcoming BoE interest rate decision. October’s Visible Trade Balance, Trade Balance Non EU and Total Trade Balance all saw deficits widen well beyond expectations. British trade has struggled against damp demand from the Eurozone and weak commodity prices. Paul Hollingsworth, UK economist at consultancy Capital Economics, said: ‘October’s dismal UK trade figures provided further signs that the economic recovery has remained worryingly-unbalanced in the fourth quarter. Granted, we would take the monthly trade figures with a generous pinch of salt. After all, they are extremely erratic, prone to significant revision and in fact last year had their status as official national statistics suspended due to a string of errors.’
The Euro to Pound Sterling (EUR/GBP) exchange rate dropped to a low today of 0.7209.
Euro to Pound Sterling Forecast: BoE Rate Decision to Provoke Significant Volatility
Given that traders have attempted to price in a positive outcome from today’s BoE interest rate decision, there is the very real chance of Sterling volatility in response. The Pound will advance if traders were correct, but dive if the minutes prove to match previous versions. With several speeches from European Central Bank officials due today the Euro may also see volatility in response.
Friday is likely to see EUR/GBP volatility with a bumper day for market moving ecostats. German inflation data and the ECB TLTRO Allotment Announcement may provoke Euro movement. US Advance Retail Sales and Consumer Confidence data is also likely to impact on Euro demand. For those invested in the Pound, November’s BoE/GfK Inflation report should be significant.
The Euro to Pound Sterling (EUR/GBP) exchange rate climbed to a high of 0.7258 during Thursday’s European session.