- Pound Euro Exchange Rate Sinks on Wednesday – Investors readjust GBP EUR positions ahead of BoE meeting
- Sterling (GBP) Rally Ends Abruptly – Quickly reverses traction as BoE decision approaches
- Update: Bank of England Freezes UK Rates – Sterling soars as bank defies expectations
- Forecast: Article 50 Speculation Begins Again – Prime Minister May takes office in UK
GBP Edges Lower on Haldane’s Stimulus Comments
After riding high in the wake of the BoE’s interest rate decision, the Pound Euro exchange rate dipped on Tuesday as investors responded to comments issued by the BoE’s chief economist Andy Haldane.
Haldane asserted that the central bank will need to introduce stimulus measures in the very near future, increasing the odds of an August rate adjustment. GBP/EUR fell back to trending in the region of 1.1980 following these remarks – sliding from a previous high of 1.2104.
Is the Pound likely to hold these gains into next week? While commentary from policymakers and politicians is likely to have an impact on GBP demand, the UK’s latest inflation numbers will also be key to Sterling volatility.
(Previously updated 08:00 15/07/2016)
Pound Euro Exchange Rate Soars as BoE Leaves Rates on Hold
The Pound Euro exchange rate soared on Thursday. Despite analysts predicting a 75% chance that the Bank of England (BoE) would choose to cut rates and introduce a new economic stimulus package in its first post-Brexit meeting, the bank shocked markets by following tradition and leaving rates frozen.
The bank’s reasoning for the surprising decision was how recent the EU Referendum result had been. Just under three weeks have passed, and policymakers were hesitant to act amid the possibility that some of the Brexit’s uncertainty could fade away in a few weeks.
Policymakers instead indicated that the BoE’s next meeting would be the one to watch for stimulus measures, and with the August meeting already under three weeks away the pressure will quickly begin to mount on the Pound once more.
GBP/EUR once again reached above the key level of 1.20 in response to the news, but struggled to maintain these levels.
Pound sentiment could remain sturdy until the end of the week, or it could bounce back from its highs on profit-taking if markets calm on Friday.
Before the weekend the GBP/EUR exchange rate was trending in the region of 1.2008.
The day’s UK construction output report is expected to show a significant decline but given that the data was compiled in May (before the referendum result was announced) its impact on Sterling may be limited.
(Previously updated 09:26 BST 14/07/2016)
The Pound Euro exchange rate plunged back towards levels of 1.19 on Wednesday as investors readjusted Sterling lower ahead of Thursday’s highly anticipated Bank of England (BoE) meeting. Tuesday’s Pound rally appeared to end abruptly despite Prime Minister May taking office last night.
GBP/EUR had briefly reached above the key level of 1.20 between Tuesday night and Wednesday morning, its highest levels since the 1st of July. However, as markets readjusted Sterling’s value throughout Wednesday the pair lost over half a cent to trend in the region of 1.1935.
The next shift in the pairing will be caused by the BoE’s interest rate decision and the level of stimulus the central bank introduces in order to combat the impact of the UK’s vote to Brexit.
Sterling (GBP) Bullishness Ends Amid Stimulus Expectations
Despite Wednesday’s session being the day that ex-Prime Minister David Cameron handed the reins over to new PM Theresa May, markets weren’t quite as upbeat as they were on Tuesday.
Sterling had previously experienced a considerable rally on Monday and Tuesday’s sessions. Theresa May’s ‘win’ of the UK’s premiership role calmed some of the political uncertainty that has gripped British markets since David Cameron announced his resignation following the EU Referendum result.
However, forex markets were less eager to continue the celebrations as some in Parliament were, as Wednesday’s session meant that Thursday’s highly anticipated Bank of England (BoE) meeting was just one day away.
Investors spent the day adjusting the Pound’s value, which in many cases meant selling it from its Tuesday highs. This is because markets widely expect that the BoE will introduce a barrage of economic stimulus on Thursday.
Recent UK forecasts have been grim, with many growth expectations and business expectations being cut. As today’s BoE meeting is to be the first since June’s history EU Referendum, expectations are high and the Pound is extremely volatile.
Euro (EUR) Sturdy as Investors Leave Pound
The Euro made a solid advance against the Pound during Wednesday’s session. This was largely to do with Sterling’s own weakness, but as a result the Euro was able to gain against some major rivals despite relatively poor Eurozone news.
According to Reuters, industrial output in the Eurozone dropped further than expected;
‘Eurozone industrial production plunged by more than expected in May, depressed mostly by a steep fall in energy output, the European Union statistics office said on Wednesday, suggesting the bloc’s economy lost steam after strong output data in April. …
The fall in May nearly erased the increase in output recorded in April when production increased 1.4 percent monthly and 2.2 percent year-on-year. …
Eurozone May monthly output decreased in all sectors, and recorded its sharpest fall for energy which was 4.3 percent down, the steepest drop this year, after two consecutive months of rising energy output.’
While this data was collected well before Britain’s UK Referendum sent shockwaves across the globe’s markets, it likely weighed on hopes that the Eurozone would be able to soften much potential Brexit damage with solid data.
According to the Financial Times, Germany also set a new record on Wednesday to become the first Eurozone country to sell a negative yielding 10-year bond at auction;
‘The sale illustrates how far-reaching Britain’s decision to leave the EU, and the uncertainty about the extent of possible economic spillover, further fuels a rush for haven assets and collapse in bond yields.
It also highlights investors’ belief that policymakers are on the cusp of delivering even more drastic action to stimulate economic growth.’
Pound Euro Exchange Rate Forecast: Is a BoE Interest Rate Cut on the Way?
Thursday is set to be a big day for GBP/EUR as well as many of the Pound’s other exchange rate pairings. The Bank of England’s (BoE) first post-Brexit vote policy decision meeting is almost here.
Since well before June’s EU Referendum, the central bank as well as other economists have warned of a Brexit’s potential economic effects – effects that BoE Governor Mark Carney said were already being borne out last week.
Markets have been widely expecting the Bank of England to act on monetary policy since the Brexit result was confirmed, and it has been indicated by Carney that the key UK interest rate will be cut at least once throughout the summer.
However, while investors are poised for the introduction of a rate cut and other easing measures today, the small possibility that rates could be left frozen still lingers.
Such a move would cause the Pound to rally across the board briefly, and would cause bets on expected September stimulus to soar.
Regardless, analyst consensus finds that there is a 75% chance of an interest rate cut today, with many expecting that the rate will be chopped by 25 basis points – from 0.50% to 0.25%.
The Euro is likely to be easily influenced by the Pound’s movements until the end of the week. A rate cut would likely see investors flock towards the shared currency from Sterling, and could see the Pound Euro exchange rate falling even closer to a three year low.