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Could BoE Decision See Pound Euro Exchange Rate Fall Back Below 1.19?

  • Pound Euro Exchange Rate Hovers around 1.17 on Friday – Sterling continues rally attempts
  • Brexit Anxiety Continues to Dominate Markets – Pound loses value week-on-week
  • Update: GBP/EUR Reaches Above 1.18 on Tuesday – Theresa May win leaves GBP bullish
  • Update:Theresa May to be Prime Minister by Wednesday – News boosts Pound sentiment
  • Forecast: Bank of England Rating Decision Ahead – Will BoE cut UK rates on Thursday?

Pound Euro Exchange Rate Hits 1.19 

The Pound Euro exchange rate rallied beyond 1.19 on Tuesday and held these gains into Wednesday as investors remained encouraged by the news that Theresa May will be the UK’s next Prime Minister.

While some analysts have predicted that the Pound could shed these gains if the Bank of England (BoE) cuts interest rates on Thursday, for now the British currency is holding firm at 1.1980.

If it transpires that the markets have already priced in a BoE rate cut, Sterling could remain trending higher after the rate decision as long as the adjustment is of no more than 0.25%.

However, if the benchmark rate is slashed to 0%, as some industry experts have forecast could be the case, the Pound could shed all of this week’s gains and fall to fresh lows against peers like the Euro and US Dollar.

(Previously updated 12/07/2016)

The Pound was on track to complete one of its biggest one-day gains since the Brexit result on Tuesday, as markets continued to react optimistically to news that Theresa May would likely be in office as Britain’s Prime Minister by Wednesday evening.

The Euro, on the other hand, has remained relatively limp in comparison as Eurozone heads continue to issue warnings about potential Brexit affects to the Eurozone, and urged UK leaders to avoid further uncertainty by beginning the formal exit process sooner rather than later.

GBP/EUR could easily fall from its current highs (around 1.1880 at the time of writing) on Wednesday though, as investors adjust their positions ahead of Thursday’s expected BoE interest rating cut.

(Previously updated 14:56 BST 12/07/2016)

Is GBP EUR Forecast to Fall from 1.18 Following BoE Announcement? 

The Pound Euro exchange rate surged to a high of 1.1876 on Tuesday as markets were reassured by the news that the UK’s next Prime Minister could be in office by Wednesday.

Hopes that Theresa May will be able to negotiate the UK a positive Brexit deal with the EU kept the Pound sturdy even as Bank of England (BoE) Governor Mark Carney implied that additional stimulus measures are likely to be introduced.

(Previously updated 10:00 12/07/2016)

Pound Euro Exchange Rate Sturdy as New PM Confirmed

The Pound Euro exchange rate fluctuated widely throughout Monday’s session. Initially plummeting on news that the Brexit had undermined business confidence, the currency surged on the surprise development that Andrea Leadsom had pulled out from the Conservative Leadership contest.

Despite the contest only being whittled down to two last Thursday, Leadsom’s sudden exit meant that frontrunner Theresa May was the sole remaining candidate in the race.

As a result, she was confirmed on Monday afternoon to be the UK’s next Prime Minister. Outgoing Prime Minister David Cameron stated shortly afterwards that she would replace him as Prime Minister by Wednesday – and that she had his full support.

With a relatively solid political path ahead for Britain, sentiment towards the Pound surged and saw the GBP/EUR exchange rate hitting daily highs of around 1.1780 in the early evening.

However, this upward momentum in Sterling is not expected to last given that the Bank of England’s (BoE) interest rate decision is now just days away. If the central bank opts to cut rates, as expected, broad-based Pound weakness is likely to follow.

With market focus so firmly on the BoE interest rate decision, the week’s UK data releases are unlikely to have much impact. That being said, BoE Governor Mark Carney’s speech to Parliament on Financial Stability will be closely attended to.

(Previously updated 15:59 BST 11/07/2016)

The Pound Euro exchange rate struggled to stay above levels of 1.17 last week after plummeting to near three-year-lows on Tuesday and Wednesday. Brexit-influenced panic continues to dominate UK markets as grim forecasts continue to be released.

After recovering from a low of 1.1614, its lowest levels since August 2013, GBP/EUR briefly reached above 1.1750 on Friday. The pair struggled to hold its ground at these highs however, as Brexit fears continue to weigh on Sterling.

Until the UK’s political landscape is less uncertain and the Bank of England (BoE) has delivered its first interest rate decision since the UK’s EU referendum, the Pound’s performance is likely to remain mixed.

Pound (GBP) Continues Relief Rally Attempts Despite Brexit Jitters

After plummeting to new lows across the board last Tuesday, investors moved to buy the Pound from its cheapest levels on each successive day.

However, news of the Brexit’s adverse effects on the UK economy largely weighed on rally attempts and left Sterling far nearer its weekly lows than the week’s opening levels. The Pound has lost around 15 cents against the Euro so far since the EU Referendum’s results were announced.

The suspension of trade in multiple major property fund groups throttled markets who were attempting to protect their UK assets earlier in the week, and a bearish UK growth forecast weighed on the Pound as the week drew to an end.

The National Institute of Economic and Social Research’s (NIESR) latest UK GDP estimate indicated that the UK economy had contracted in June, despite a strong April. This worsened fears that the UK economy would struggle to stay above the red in the months following the EU Referendum.

According to a new survey of 2,000 from GfK, UK consumer confidence has also plummeted by 8 points to -9, a low figure not seen since 1994.

However, Sterling’s rally was slightly assisted by news that the goods trade deficit had narrowed further than expected in May, according to the Guardian.

While this data predates the EU Referendum, a lower-than-expected goods deficit could soften the blow of the widely predicted damage the Brexit could cause to UK deficits.

Euro (EUR) Sentiment Slumps on Dovish Eurozone News

The Pound has found the Euro to be among the easier currencies to take point against due to the Euro’s lack of inspired movement in the last week.

While the Euro continues to advance against the Pound, Brexit jitters alongside poor Eurozone data and ECB expectations have undermined the Euro’s strength.

Disappointing German data, from industrial production contractions on Thursday to a drop in the German trade surplus on Friday also weighed on Euro sentiment.

However, possibly the biggest concerns for Euro investors after last week’s session are the European Central Bank’s (ECB) plans to stave off Brexit-influenced damage to the Eurozone.

According to The Telegraph, minutes of the ECB’s 2nd of June meeting indicated that the central bank was heavily concerned about the possibility of a Brexit, and even had stimulus in place for the potential event;

Yet the minutes also showed that the ECB’s committee was considering unleashing further stimulus ahead of the Brexit vote, with “broad agreement” that there was a need to monitor inflation and affirm a “readiness to act by using all the instruments available… if warranted”.

Jennifer McKeown, of Capital Economics, said the ECB could pump up its quantitative easing scheme in the wake of the UK referendum result, increasing monthly asset purchases from €80bn (£68bn) to as much as €100bn.’

The Euro’s losses were extended on Friday afternoon after the International Monetary Fund (IMF) once again cut their Eurozone growth forecast, to 1.6% in 2016 and 1.4% in 2017 due to Brexit fallout.

Pound Euro Exchange Rate Forecast: Bank of England in Focus This Week

With the Bank of England’s (BoE) highly anticipated first post-Brexit interest rate meeting due to take place this coming Thursday (the 14th) markets are likely to adjust the value of the Pound based on the latest Brexit news from Monday to Wednesday.

Market reaction to the weekend’s Brexit-related news will be immediate, and could set the Pound’s trends until Thursday’s BoE meeting.

As for expectations, analysts currently predict a 78% chance of a BoE interest rate cut this week, which would see Sterling falling further.

In the chance that rates are left frozen, the Pound would likely experience a strong relief rally. It would be very temporary, but could see GBP/EUR briefly return to levels above 1.19 again. In this event, analysts expect there would be an 86% chance of a rate cut in August’s BoE meeting.

Euro movement is likely to be relatively muted throughout the week, but is highly likely to advance on the Pound as Brexit-anxiety drags Sterling lower.