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Euro to Pound Exchange Rate Rises on Surprisingly Dovish Bank of England Statement

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EUR/GBP Exchange Rate Edges Higher as Bank of England Sees ‘Strong GDP Growth’ as Temporary

The Euro to Pound (EUR/GBP) exchange rate rose by 0.4% today after the Bank of England (BoE) struck a surprisingly dovish tone, seeing the nation’s economic recovery and rising inflation levels as largely transitory. The pairing is currently fluctuating around £0.85.

As a result, the Pound struggled from the Bank’s shrugging off inflation fears, which, according to the BoE’s Monetary Policy Committee (MPC) is for a ‘temporary period’.

The MPC said:

‘The Committee’s central expectation is that the economy will experience a temporary period of strong GDP growth and above-target CPI inflation, after which growth and inflation will fall back.

‘There are two-sided risks around this central path, and it is possible that near-term upward pressure on prices could prove somewhat larger than expected.’

Combined with rising Covid-19 cases in England – which soared by around 40% yesterday – Pound investors have become more cautious about the outlook for the British economy.

Added to this, rising cases of the new Delta coronavirus variant have sparked concerns over the possibility of a delay to the lifting of lockdown restrictions next month.

As a result, the Pound (GBP) struggled to rise against the single currency today as the outlook for the UK’s economy looks increasingly uncertain.

Euro (EUR) Edges Higher as French and German Business Confidence Jumps to Record Highs

The Euro (EUR) rose today after both French and German business confidence jumped above forecasts, with French levels reaching their highest levels since mid-2007.

With the German economy shaking off the coronavirus crisis, Euro investors have become more confident about the outlook for the Eurozone.

IFO President Clements Fuest commented on the data:

‘In trade, the easing of restrictions improved the business climate greatly. This was due to a marked improvement in current business. Expectations also turned more optimistic. Sentiment rose particularly steeply in retail. Never has the indicator for the current situation seen such a steep rise.’

‘In construction, the index rose a little. Assessments of the current situation were almost unchanged. Expectations improved, but remained pessimistic. Material shortages continue to pose major problems.’

Now that the Eurozone economy is edging back to pre-pandemic levels, we could see the EUR/GBP exchange rate edge higher this week.

EUR/GBP Exchange Rate Outlook: German Consumer Confidence Data in Focus

Tomorrow will see the release of the latest UK consumer confidence gauge for June. Could rising consumer morale lend support to the Pound Euro exchange rate as the outlook for the UK economy improves?

However, with rising Covid-19 levels throughout the UK, we could see the Pound dragged down by fears that the lifting of lockdown measures planned for July could be delayed.

Euro (EUR) investors will also be eyeing tomorrow’s release of the latest German consumer confidence survey for July.

If the outlook for the Eurozone’s economy continue to improve, then the EUR/GBP exchange rate will head higher.