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Dovish BoE Announcement Sends Euro Pound (EUR GBP) Rocketing to Highest Level Since 2011

European Union news
  • Euro Pound Soars to 0.9048 – Pound Euro Drops to 1.1048
  • Dovish BoE sends Pound Plummeting – BoE Cuts Growth Forecast to 1.7%
  • German Factory and Construction Orders Climb – German Retail PMI Drops
  • Ben Broadbent Insists Rates May Have to Rise more than Expected – Pound’s Fall Steadies

The Euro to Pound exchange rate rocketed to some of its highest levels since 2011 yesterday after the Bank of England (BoE) made public its August monetary policy decision and Q2 inflation report.

As predicted, the Monetary Policy Committee (MPC) voted 6-2 in favour of holding interest rates at 0.25%, a disappointment for some who hoped that Chief Economist Andy Haldane might join the hawkish contingent after his comments in June.

Alas, this was not to be, and (adding further insult to injury) the bank also announced that it had cut this year’s growth forecast from 1.9% to 1.7% and indeed its 2018 forecast from 1.7% to 1.6%.

Mark Carney, Governor of the BoE, asserted that business investment was slower due to Brexit uncertainty, he stated:

‘It’s evident in our discussions across the country with businesses […] that uncertainties about the eventual relationship are weighing on the decisions of some businesses. The speed limit of the economy, if you will, has slowed.’

Carney’s comments spooked investors, as they indicated that various firms were extremely hesitant about both investing and hiking wages amid concerns of a possible ‘cliff-edge’ Brexit.

The Euro to Pound exchange rate swiftly leapt to 0.9045.

Euro (EUR) Gains Bolstered by Strong German Factory and Construction Order Prints

As the trading week draws to a close, the Euro was bolstered once more by some predominantly positive data releases, namely the year-on-year German factory order data, which demonstrated growth of 5.1%, up from the previous 3.8% and the forecast of 4.4%.

Month-on-month German industrial orders increased 1% in June, beating expectations of growth of 0.5% but coming in lower than the upwardly revised 1.1% figure in May.

These figures were underpinned primarily by a surge in broad-based domestic orders, demonstrating a pickup in momentum for Germany – the Eurozone’s largest economy.

EUR GBP Steadies on Friday as Ben Broadbent Offers Hawkish Sentiment

The Euro’s climb against the Pound levelled out today after Deputy Governor of the BoE Ben Broadbent asserted that UK interest rates may have to be raised higher than markets currently expect.

Broadbent stated:

‘The MPC said given the other assumptions in its forecast it thought probably there would need to be rate rises, and indeed more rate rises than those priced into the interest rate curve in future than the financial markets expect […] I do think the time is likely to come when rates will go up generally’.

Whilst this was not enough to turn the tide for the Pound, it helped the currency find a firmer footing.

EUR GBP Forecast: Will the Euro’s Gains Last?

Next week’s data calendar for this pairing remains quite sparse, although on Tuesday we will see the release of Germany’s June trade balance figures, Thursday the UK’s trade balance, industrial manufacturing and construction output figures, and on Friday Germany’s inflation figures.

With the first half of the week remaining very quiet in regards to data, focus will likely shift to Brexit manoeuvrings.