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Pound Euro Exchange Rate Pushes Higher as BoE Policymaker Boosts May Interest Rate Hike Odds

Hawkish BoE Policymaker Encourages Pound Euro Exchange Rate Gains

Comments from Bank of England (BoE) policymaker Ian McCafferty encouraged the Pound to Euro (GBP/EUR) exchange rate to push higher, with hopes of an imminent interest rate hike boosted.

While McCafferty’s hawkish tone comes as little surprise, considering his position as one of the more prominent BoE hawks, his comments still helped to push the Pound (GBP) higher on Tuesday morning.

As he noted that the BoE ‘shouldn’t dally when it comes to tightening policy modestly’ this encouraged bets that a May interest rate hike is still on the table.

Although it remains to be seen whether other members of the Monetary Policy Committee (MPC) share this more optimistic outlook the Pound still benefitted from an uptick in demand.

Euro Struggles to Capitalise on More Upbeat ECB Comments

Confidence in the Euro (EUR), meanwhile, remained muted as a result of Monday’s unimpressive German trade data, offering additional support to the GBP/EUR exchange rate.

With signs pointing towards the Eurozone having lost some of its momentum in the first quarter of 2018 this naturally put pressure on EUR exchange rates.

While trade tensions between the US and China appeared to ease somewhat this failed to boost the single currency, with investors still jittery over the prospect of the Eurozone being dragged into a trade war.

Even relatively hawkish commentary from European Central Bank (ECB) policymaker Ewald Nowotny was not enough to shore up the Euro on Tuesday morning.

However, if ECB President Mario Draghi adopts a more upbeat tone in comments on Wednesday this may see the GBP/EUR exchange rate wobble.

GBP/EUR Exchange Rate Vulnerable as UK GDP Forecast to Slow

The GBP/EUR exchange rate is likely to see some volatile movement on Wednesday with the release of the latest raft of UK trade and production data.

Investors are hoping to see signs that the UK economy picked up pace in February, with forecasts pointing towards solid upticks in industrial and manufacturing production on the year.

Focus will also fall on the NIESR gross domestic product estimate for the three months to March, though, which is expected to indicate that growth slowed to 0.3% in the first quarter.

Even so, as Mathias Mogensen, analyst at Danske Bank, noted:

‘UK data prints tomorrow (NIESR GDP estimate, industrial and manufacturing production data) are unlikely to change the market’s expectations of a rate hike from the BoE in May and the GBP is likely to remain underpinned ahead of the BoE meeting on 10 May.

‘Note, however, that speculative positioning is stretched long GBP at the highest level since 2014, according to the latest IMM data, indicating that the GBP might be relatively sensitive to negative news and profit takings etc.’

A downside surprise from the day’s economic data could still see the GBP/EUR exchange rate slump sharply, however.