Pound to Euro Exchange Rate Rebound Limited as Negative Interest Rates Appear Possible
Despite a mixed tone from the Bank of England (BoE) today, the Pound Sterling to Euro (GBP/EUR) exchange rate has seen a jump in demand. Investors are buying the Pound (GBP) in reaction to a less dovish tone on Britain’s economy, but broad uncertainties persist.
As investors are hesitant to sell the Euro (EUR) too much, GBP/EUR has seen mixed movement lately. GBP/EUR eventually climbed to the level of 1.1110 last week, but has been trending lower after hitting a half-month-high of 1.1131 on Monday.
GBP/EUR trends with a downside bias due to the broad appeal of the Euro. While GBP/EUR rebounded from this week’s lows this morning, its recovery has been limited. GBP/EUR still trends below the week’s opening levels, in the region of 1.1100.
Investors are still hesitant to sell the Euro too much, as Eurozone data continues to hint at economic resilience in the Eurozone.
Pound (GBP) Exchange Rate Rebound Limited as UK Uncertainties Persist
This morning, the Pound saw a strong jump in demand as markets reacted to the Bank of England’s (BoE) August policy decision.
The BoE left monetary policy frozen as was expected. However, while expected to become even more dovish, the bank was actually less dovish than in past policy decisions.
The bank’s report showed that officials were more optimistic about Britain’s 2020 economic outlook than in May. On top of this, the bank said that Britain’s Q2 performance was less bad than feared.
Sterling benefitted from these factors, but gloom persisted in other aspects of the bank’s outlooks.
On the subject of negative interest rates, the BoE said that it intended to look at whether or not negative rates were suitable for Britain’s economy.
Some analysts, including Strategists at Citibank, predict that the bank could have negative rates in place next year:
‘We do not imminently expect negative rates due to the side effects on banks, but continue to forecast Bank Rate at -0.1% by mid-2021, once the COVID-19 and Brexit dust has settled.’
Euro (EUR) Exchange Rates Steady amid Forecast-Beating Data
Unlike the Pound, the Euro outlook remains generally positive overall. While concerns persist over the coronavirus pandemic’s impact on Britain, the Eurozone has been seen as handling the pandemic comparatively well.
Eurozone data continues to be strong and the EU and European Central Bank’s (ECB) handling of the pandemic has generally been received well in recent months.
With the US Dollar (USD) seeing broad weakness, the Euro is also benefitting as its rival.
Today’s German factory orders data only further boosted Euro support. The data was expected to rise to 10.1% in June but instead bounced strong with a figure of 27.9%
Pound to Euro (GBP/EUR) Exchange Rate Investors Await German Trade Stats
Most of this week’s notable ecostats have been published already. The data continues to show a mixed outlook for Britain, with more resilience in the Eurozone.
What’s more, with the Bank of England (BoE) predicting more weakness ahead for Britain and even the possibility of negative interest rates on the horizon, the Pound’s potential for gains is limited as well.
On the other hand though, the Eurozone’s own coronavirus outlook could worsen if a ‘second wave’ of infections begins to hit Europe hard.
There are concerns that there could be fresh lockdowns in the Eurozone amid the ‘second wave’. This might hurt the Euro going forward.
Still, while coronavirus developments will remain highly influential, upcoming Eurozone data could cause GBP/EUR movement as well.
Tomorrow will see the publication of Germany’s June trade balance report. Looking ahead, next week’s UK and Eurozone job market data could also influence the Pound to Euro (GBP/EUR) exchange rate.