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Pound Euro (GBP/EUR) Exchange Rate Slides as BoE Announce £100 Billion in QE

Pound Sterling Euro (GBP/EUR) Exchange Rate Tumbles Following BoE Meeting

UPDATE: The Pound Sterling Euro (GBP/EUR) exchange rate slumped by around -0.8% on Thursday afternoon. This left the pairing trading -0.5% lower at €1.1073.

The Pound plummeted against the Euro following the Bank of England’s (BoE) meeting. GBP/EUR had earlier been able to regain some losses before sliding firmly back into negative territory.

The BoE announced it would be increasing its bond-buying programme by £100 billion to help boost Britain’s coronavirus-hit economy.

GBP remained under pressure as the bank also left rates at a record low of 0.1% and said the new total of £745 billion in government bond purchases will likely be hit by the end of 2020.

Commenting on this, Viraj Patel, FX and global macro strategist at Arkera said:

‘It was on the hawkish end of the spectrum for what the BoE could have done today. The pace at which the BoE’s asset purchases will take place over the coming months will materially slow – meaning that there will be less marginal QE support.

‘That explains the headline-driven increase in the pound – although overall, given that the Bank can scale-up purchases as and when they like, it’s not something to get carried away with.’

Pound Sterling Euro (GBP/EUR) Exchange Rate Slides Ahead of the BoE Meeting

The Pound Sterling Euro (GBP/EUR) exchange rate slumped on Thursday ahead of the Bank of England’s meeting. This left the pairing trading -0.5% lower at €1.1105.

Sterling fell against the Euro on Thursday as traders awaited the Bank of England’s (BoE) monetary policy meeting.

The BoE is expected to increase its £100 billion bond-buying programme. Although, there is speculation markets may see a larger increase.

The bank has already spent most of its £200 billion firepower it gave itself in March. The BoE’s bond-buying scheme is its most powerful option to help with the economy.

Britain has suffered a record -25% contraction in March and April and inflation has plummeted below the bank’s 2% target.

Sterling suffered losses as the threat of negative interest rates continued to weigh on the currency.

Sterling (GBP) Slides on Negative Rate Speculation

Interest rates are currently at 0.1%. Governor, Andrew Bailey said the bank would consider taking rates below zero for the first time, although this review is expected to take time.

Traders are likely to watch out for signs the BoE will take rates into negative territory and in a daily note, ING strategists wrote:

‘Uncertainty around a UK-EU trade deal should prevent markets from pricing out the possibility of negative rates in the UK. We expect little progress in UK-EU trade negotiations in the weeks to come, suggesting further downside to the pound and the currency to be one of the underperformers in the G10 FX space.’

Meanwhile, investors expect the BoE Monetary Policy Committee to reaffirm their earlier message that the bank is ready to offer further stimulus if required.

Commenting on this, Viraj Patel, FX and global macro strategist at Arkera noted:

‘The Pound remains defensive ahead of the Bank of England meeting – partly as markets may be bracing themselves for a bigger QE expansion than the 100 billion consensus.

‘There’s a good argument for this – given that a 100 billion expansion would barely last through summer at the current pace of weekly gilt purchases. We would consider a 100 billion QE expansion to be a slightly more hawkish signal than the range of possible outcomes today.’

Euro (EUR) Rises as Traders Fret Over BoE, Brexit and Coronavirus

The single currency was able to make gains against the Pound today as investors worried about today’s BoE meeting.

Added to this, demand for safe-haven currencies jumped on growing concerns about the rise in coronavirus cases.

The increase in Covid-19 cases in the United States and Beijing’s introduction of travel restrictions to stop a new outbreak weighed on market sentiment.

This also highlighted the risks of re-opening economic activity before a vaccine has been introduced. This weighed on the riskier Pound.

Traders also focused on trade negotiations between the UK and European Union which have so far made little progress.

This increases the risks that Brussels and London will fail to agree on a trade deal before the end of the year. This put further pressure on the Pound, allowing EUR to make gains.

Pound Euro Outlook: Will EUR Give Up Today’s Gains?

Looking ahead to Friday, the Euro (EUR) could give up some of today’s gains against the Pound (GBP) following the release of German inflation.

If Germany’s Producer Price Index (PPI) plummets further than expected in May despite economic activity beginning to pick up, EUR will slide.

However, the pairing could be left flat following the release of British retail sales data.

If retail sales plummet in May despite the gradual re-opening of the economy, it will send the British currency lower. This will leave the Pound Euro (GBP/EUR) exchange rate muted.