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Pound Euro Exchange Rate Hits Weekly Low Following BoE Disappointment

  • Pound Euro Exchange Rate Drops to 1.12 – Plummets from 1.13 on BoE news
  • Bank of England Hikes UK Rates – But indicates there will not be a rate hike cycle
  • GBP Forecast: UK Services Data Ahead – Could help Pound recover from Thursday drop
  • EUR Forecast: Services PMI Next Week ­– As well as retail sales and trade data

The Pound Euro exchange rate plummeted on Thursday afternoon following a dovish monetary policy decision from the Bank of England (BoE). Sterling traders were not notably impressed by the bank’s decision to hike UK interest rates to 0.50%.

GBP EUR began the week trending at the level of 1.1308 and hit a high of 1.1446 on Wednesday. However, the pair quickly slipped from this high and plummeted to a weekly low of 1.1189 on Thursday afternoon following the Bank of England’s (BoE) latest policy decision.

Pound (GBP) Sold Following Bank of England’s (BoE) Dovish Tone

After weeks of speculation that the Bank of England (BoE) would hike UK interest rates during its November policy decision, the bank did indeed raise rates from 0.25% to 0.50% on Thursday.

This was the bank’s first interest rate hike since 2007 – but despite this the Pound spent most of the afternoon falling.

Investors sold the Pound against most major currency rivals, including the Euro, due to disappointment that the bank had not shown any hints that more interest rate hikes were on the way in the future.

Markets speculated that the bank would confirm its interest rate hike and kick off a fresh rate hike cycle.

However, the bank and its Governor Mark Carney were cautious and stated that any further rate rises would be gradual and limited.

Carney also issued fresh warnings on the Brexit process, saying that because of Brexit uncertainty there was still too much economic uncertainty to keep tightening monetary policy.

Analysts argued that the Brexit will once again take focus in Pound trade now that the BoE decision has passed. According to Jordan Rochester from Nomura International Plc;

‘Following the BOE monetary policy committee’s decision, the market focus will remain on developments in data, Brexit talks and what comes of Philip Hammond’s autumn budget, Any loosening of fiscal policy will be a market surprise and will lead to higher yields, a more hawkish BOE and therefore a stronger Sterling with it.’

Besides the Bank of England decision, Thursday also saw Markit publish its UK construction PMI for October. The figure beat 48.1 expectations and rose to 50.8, but investors largely overlooked the data due to BoE disappointment.

Euro (EUR) Supported by Strong Factory Data

While most of the week’s GBP EUR movement so far has been driven by the Pound, the Euro did capitalise on Pound weakness on Thursday thanks to some supportive Eurozone data.

Germany’s October unemployment report was slightly better-than-expected. The unemployment rate remained at 5.6% as forecast but the unemployment change came in at -11k, better than the forecast -10k.

Markit’s final October manufacturing PMI was impressive too. Germany’s was even stronger than expected, holding at 60.6 rather than dropping to 60.5 as forecast.

While the overall Eurozone manufacturing print missed a 58.6 projection due to France’s underwhelming manufacturing data, the figure still improved from 58.1 to an impressive 58.5.

According to Markit’s Chief Economist, Chris Williamson;

‘October’s PMI was the highest since February 2011 and the second-highest in over 17 years. The overall performance of the manufacturing sector so far this year has been the strongest since 2000.

It’s especially encouraging to see employment growing at a survey-record pace as firms seek to boost capacity in response to fuller order books.’

Pound Euro Exchange Rate Forecast: Services PMIs Ahead

The Pound is unlikely to strongly benefit from Bank of England (BoE) speculation again for a little while, as the bank has indicated that its next rate hikes will be gradual and limited over the coming years.

As a result of this and BoE Governor Mark Carney’s warnings on Brexit, Pound trade could become more Brexit focused again.

With the end of the year now under two months away, investors will be increasingly hoping for signs that Brexit negotiations are progressing to the second phase.

Markets have become hopeful that UK-EU trade talks could begin before 2018, which would help to relieve concerns of a possible ‘cliff-edge’ hard Brexit.

As a result, any Brexit developments (or a lack of developments) have the potential to influence Pound Euro exchange rate movement.

Upcoming data could influence the pair too however.

On Friday, Britain’s October services PMI will be published. As services make up a notable chunk of Britain’s economy, this report could cause further Pound weakness if it disappoints.

As for the Euro, the shared currency is unlikely to be notably influenced by data until Monday’s services PMI for the bloc or Tuesday’s September retail sales stats.

GBP EUR Interbank Rate

At the time of writing this article, the Pound Euro exchange rate trended in the region of 1.1190. The Euro Pound exchange rate traded at around 0.8930.