Pound to Euro Exchange Rate Touches New 2018 High on BoE Hawkishness
Updated 12:57 BST 22/03/2018:
The Pound to Euro (GBP/EUR) exchange rate briefly touched a fresh 2018 high of 1.1506 in the aftermath of the Bank of England’s (BoE) March policy decision.
This was the pair’s first time above the key 1.15 level since June 2017.
As expected, the bank voted to leave UK monetary policy frozen in March. However, investors were briefly hawkish about news that two policymakers had voted to hike rates.
The bank’s meeting minutes also hinted that it was preparing to hike UK interest rates again within the coming months, bolstering bets that the BoE would hike UK interest rates in May.
However, the news was ultimately not too surprising as many investors were already betting on a May hike. As a result, GBP/EUR gains were limited and the pair struggled to hold above 1.15.
[Published 10:50 BST 22/03/2018]
Pound to Euro Exchange Rate Fluctuates Near Highs Ahead of Key BoE Policy Decision
Many factors have left the Pound to Euro (GBP/EUR) exchange rate more appealing this week, such as hopes for a smooth Brexit process, higher UK wage growth and the hawkish effect these have had on Bank of England (BoE) interest rate hike bets.
Despite some perceived hawkishness from the European Central Bank (ECB), some underwhelming Eurozone data has made it easy for GBP/EUR to climb from 1.1342 to near a monthly high of 1.1480 so far this week.
Investors firmed in the Pound to Euro (GBP/EUR) exchange rate as they anticipated the Bank of England’s March policy decision, which will be announced early Thursday afternoon.
While no change in monetary policy is expected, wide speculation that the bank could be pressured into hiking UK interest rates in May has left hawkish investors hoping for some kind of signal from this week’s meeting.
Pound (GBP) Exchange Rates Firm with Help of UK Data
While bets of Bank of England (BoE) hawkishness were mostly boosted by news that the UK and EU had largely agreed to the terms of a post-Brexit transition period, UK data has been strong this week too.
Wednesday saw the publication of Britain’s January job market results, which beat expectations in many key prints.
Britain’s unemployment rate unexpectedly improved from 4.4% to a 42 year high of 4.3%, while the employment change figure came in with a much stronger than forecast 168k.
Investors were even more impressed by the latest wage growth results, which improved in January. The print including bonuses rose to 2.8%, despite being forecast to only reach 2.6%.
Thursday’s data followed with a more impressive than expected UK retail sales report from February. Monthly retail sales rose to 0.8%, double the expected 0.4%, while the year-on-year figure slipped from 1.6% to 1.5% rather than the expected 1.3%.
Analysts noted that overall things worsened during the three months into February, but the better-than-expected February results still offered Sterling (GBP) trade some support.
Euro (EUR) Exchange Rates Weak as Latest Data Fails to Offer Support
This week’s Eurozone data has been underwhelming. Following months of stronger-than-expected Eurozone stats, the disappointing figures this week have weighed on the Euro (EUR).
Thursday saw the publication of Markit’s Eurozone PMI projections for March, which largely fell short of expectations.
Germany’s key manufacturing PMI was forecast to slip from 60.6 to 59.8 but instead slipped to 58.4. The composite figure fell from 57.6 to 55.4.
The Eurozone’s overall PMI projections all fell short. Manufacturing fell from 58.6 to 56.6 and services from 56.2 to 55.0. The composite PMI was forecast to slip from 57.1 to 56.7 but only printed at 55.3.
Markit’s disappointing report followed news earlier in the week that Eurozone economic sentiment had plunged, amid concerns about the possibility that a US sparked ‘trade war’ could impact the Eurozone economy.
Pound to Euro (GBP/EUR) Forecast: More Brexit Developments Possible
While Thursday’s Bank of England (BoE) policy decision has the potential to influence Pound to Euro (GBP/EUR) exchange rate movement for the remainder of the week, it is possible that Brexit developments could still influence Sterling trade.
The March EU summit will be held from Thursday until the end of the week and it was previously toted by the UK government as a key event for potential advances in the Brexit process.
While UK and EU negotiators have already largely agreed to the terms of a UK transition period, it’s possible that further progress could be made during the summit. It’s also possible that new disagreements or deadlocks could emerge instead.
Of course, any notable developments in Brexit negotiations could have an impact on the Pound and GBP/EUR.
Failing that though, comments from Bank of England (BoE) officials on Friday could cause some late-week movement.
In terms of data, multiple key prints will be published next week. This includes UK Gross Domestic Product (GDP) results from Q4 2017 and German inflation projections for March.
