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Euro Pound (EUR/GBP) Exchange Rate Rallies Despite BoE Striking Hawkish Tone


Euro Pound (EUR/GBP) Exchange Rate Strengthens Despite Hawkish BoE Decision

The Euro Pound (EUR/GBP) exchange rate is rising today, despite a hawkish interest rate decision from the Bank of England (BoE).

At the time of writing, EUR/GBP is trading at around £0.8545, an increase of just under 0.3% from today’s opening rates.

Pound (GBP) Recovers as BoE Unveils Hawkish Rate Decision

Following a muted started to the session, the Pound (GBP) is recovering against most peers besides the Euro. The Bank of England (BoE) kept interest rates unchanged as expected, but struck a more hawkish note than anticipated.

The BoE firmly advocated for its existing ‘table mountain’ approach to monetary policy – keeping rates higher for longer. This is serving to benefit the Pound during the afternoon’s trade, as investors pare back their rate cut expectations.

However, the BoE now appears to be turning towards cutting rates, or at least beyond further tightening. Their meeting minutes stated that:

‘It will therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation.’

This may be serving to limit the Pound’s upward momentum today, as rate cut bets may still linger amongst investors.

Euro (EUR) Wavers amid Mixed Data

The Euro (EUR) is fluctuating today, amid mixed economic data releases, which painted a muddled image of the Eurozone’s outlook.

Headline inflation cooled to 2.8% in January, matching market forecasts. However, core inflation only eased slightly to 3.3%.

This is serving to induce choppy trade in the Euro, as inflation remains stickier than expected, and could prompt the European Central Bank (ECB) to keep interest rates steady.

Underpinning the Euro, however, is the latest unemployment data for the bloc. The rate held at 6.4%, a record low, in December. This is suggesting that the labour market is tighter than anticipated, and may give room to further hawkish action from the ECB, underpinning EUR exchange rates.

Euro Pound Exchange Rate Forecast: Lack of Data to Limit Pairing?

Looking ahead for the Euro, data releases are few and far between as we move through to the end of the week. Because of this, EUR exchange rates could remain tepid during Friday’s session.

Risk appetite is likely to play a more significant role in driving EUR tomorrow because of this. As a safer currency, a shift towards bearish trade could strengthen it above riskier peers.

The story is similar for the Pound. Due to a light data calendar, the focus may remain on analysis of the BoE’s latest interest rate decision.

Following a hawkish skew to its monetary policy, this could support the Pound against its peers through to the end of the week.

However, this lack of impactful data releases could prevent GBP exchange rates from strengthening to their full potential.

Additionally, as a more risk-sensitive currency than the Euro, a shift towards downbeat trading conditions could weaken GBP against the common currency.