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Hawkish Vote from BoE’s Forbes Inspires Pound Sterling Euro Exchange Rate Gains This Week

  • Pound Sterling Euro Exchange Rate Remains Near 1.15 – Jumps after Thursday BoE news
  • UK Wage Growth Disappoints – But low unemployment rate keeps GBP EUR steady
  • Bank of England Leaves Rates Frozen – But hawkish Forbes boosts Pound
  • Forecast: UK Inflation Due Tuesday – Higher than expected results could bolster Pound

Pound Sterling Euro Exchange Rate Ends Week Near 1.15

The Pound Sterling Euro exchange rate trended narrowly around the level of 1.15 for most of Friday afternoon as investors cooled from this week’s highly volatile trade session.

After this week’s Bank of England (BoE) news, GBP traders look ahead to the publication of Britain’s February inflation stats next Tuesday.

If UK inflation rises even further than expected, it will increase hopes that inflation may be able to pressure the BoE into tightening monetary policy in the foreseeable future.

Next week’s influential data also includes preliminary March Eurozone PMIs from Markit, which will indicate how the Eurozone economy has performed thus far this month.

Lastly, Sterling is likely to remain volatile even if UK data impresses as the final week of March (and the start date for the Brexit process) draws near.

[Previously updated 12:48 GMT 17/03/2017]

After dipping on Thursday evening, the Pound Sterling Euro exchange rate tested its weekly highs above 1.15 once again during Friday’s European session.

Friday’s Eurozone data did little to influence GBP EUR. However, it was notable as the Eurozone’s January trade balance saw its first trade deficit since January 2014.

Analysts believe the deficit is due to a surge of energy imports durintg the cold winter months. They also argue a lack of net trade could drag slightly on Eurozone growth near the beginning of 2017.

Pound investors remained optimistic after this week’s Bank of England (BoE) news and are now highly anticipating next week’s February UK Consumer Price Index (CPI) figures.

[Previously updated 16:28 GMT 16/03/2017]

Pound Sterling Euro Exchange Rate Surges Following BoE News

The Pound Sterling Euro exchange rate jumped up above 1.15 on Thursday afternoon due to news that Bank of England (BoE) policymaker Kristin Forbes had voted to hike UK interest rates.

While monetary policy was left frozen at 0.25%, this increased hopes that other policymakers may be willing to move towards tighter policy in the foreseeable future too.

As a result, the Pound was able to beat back the day’s Euro strength. Demand for the Euro improved on Wednesday night and Thursday morning as Dutch Prime Minister Mark Rutte won a comfortable victory in this week’s 2017 Netherlands election, beating anti-EU Geert Wilders.

Analysts expect a new coalition government will be made in The Netherlands without Wilders’ involvement, but concerns remain about the 2017 French election in the coming months.

[Previously updated 12:59 GMT 16/03/2017]

Thursday’s Bank of England (BoE) meeting left UK monetary policy frozen but led to a solid jump in the Pound Sterling Euro exchange rate as investors expressed optimistic surprise at a hawkish move from BoE policymaker Kristin Forbes.

Forbes, who has argued in recent months that the BoE should tighten monetary policy in the near future to combat rising inflation, is a known hawk of the Monetary Policy Committee (MPC).

However, investors had not expected she would vote to hike UK interest rates to 0.5% as soon as March. While all other MPC members voted to leave policy frozen, Forbes’ vote to hike rates was enough to inspire investors to buy the Pound.

Bets of a UK interest rate hike in May have increased as a result. Early on Thursday morning, GBP EUR trended at the level of 1.15.

[Published 06:00 GMT 16/03/2017]

The Pound Sterling Euro exchange rate saw mixed movement on Wednesday. Mixed employment stats held GBP EUR away from weekly highs, but hopes for a more hawkish Bank of England (BoE) and investors buying up the cheap Pound left the pair higher.

GBP EUR began the week at the level of 1.13 and has fluctuated widely throughout the week. Despite falling on Tuesday, GBP EUR hit a high of 1.15 briefly on Wednesday but has generally trended around 1.14.

Pound (GBP) Movement Mixed on BoE Hopes and Employment Data

The Pound has been highly volatile over the last week as some investors anticipate gloomier times ahead for the UK economy while others hope for tighter monetary policy and solid growth despite the Brexit process.

Wednesday was the latest showing of Sterling’s volatility as the currency soared in the morning, following a report from The Times suggesting that the Bank of England (BoE) could be pressured into moving away from ultra-loose monetary policy in the foreseeable future.

Charles Goodhart, a former BoE policymaker and current member of The Times’ own self-fashioned ‘shadow monetary policy committee’ believed the BoE could hint at tighter monetary policy being possible as soon as May;

‘They should lay the ground in the accompanying minutes for a possible increase in interest rates at their next meeting.’

However, despite higher BoE hopes Wednesday’s UK employment stats for the three months into January were met with mixed reaction. This left the Pound well down from its highs for the remainder of Wednesday trade.

The unemployment rate unexpectedly improved to 4.7% – the best rate since 1975. However, UK wage growth also came in slower than expected at 2.2% including bonuses and 2.3% excluding.

Laura Gardiner, senior policy analyst from the Resolution Foundation, argued that the slowing in wage growth was grim news;

‘Weak pay rises and rising inflation mean that a fresh squeeze is due later this year, and has already begun for some workers, especially in the public sector.

The incredibly poor outlook for pay has pushed a return to pre-crash earnings back well into the next parliament, making the 2010s the weakest decade for pay growth since the Napoleonic wars.’

Euro (EUR) Jittery as The Netherlands Holds 2017 General Election

A lack of influential Eurozone data on Wednesday left the Euro limp.

The Pound generally took point in Pound Sterling Euro exchange rate movement, with investors hesitant to make any big moves on the shared currency amid Wednesday’s 2017 Dutch general election.

Analysts argue it is unlikely for populist anti-EU candidate Geert Wilders to take power even if he attains more seats than his opponents due to an unwillingness among other parties to form a coalition with him to create a majority government.

However, traders remain concerned that the results could still surprise and hint at rising nationalist populism in the Eurozone bloc which has left the Euro weak.

Wednesday’s Eurozone ecostats were too low-influence to offer the shared currency any notable support. According to the Eurozone bloc’s Q4 employment change figures, employment was better than expected at 0.3% quarter-on-quarter but slower-than-expected year-on-year at 1.1%.

Pound Sterling Euro Exchange Rate Forecast: Bank of England (BoE) in Focus

The Pound has seen much of its recent strength due to hopes that the Bank of England (BoE) will adopt a more hawkish tone and indicate that it will move away from ultra-loose monetary policy.

As a result, if the BoE merely adopts its usual cautious tone and once again emphasises uncertainty, the Pound could slump on Thursday.

Investors will also be paying close attention to any upgrades the BoE makes to its growth and inflation forecasts. Higher forecasts will keep traders hopeful that the BoE could take on a more hawkish tone later in the year.

If the BoE does indeed indicate that the UK economy may be able to support tighter monetary policy in the near future, GBP EUR will surge and easily hit new weekly highs.

Meanwhile, Euro traders will be reacting to any results from Wednesday’s 2017 Dutch general election.

While a coalition government is unlikely to be formed for days or weeks, the Euro will still likely react to the results of the vote as they will indicate the influence of nationalist populism inside the Eurozone.

Thursday will also see the publication of the Eurozone’s final February Consumer Price Index (CPI) results. If these come in above expectations, hopes for tighter monetary policy from the ECB by the end of the year could increase and the Pound Sterling Euro exchange rate will weaken.