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Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast to Strengthen despite Dovish BoE Chief Economist

GBP/EUR Exchange Rate Predicted to Advance after FOMC Holds Rates

The Pound Sterling to Euro (GBP/EUR) exchange rate advanced by around 0.4% on Friday afternoon.

Despite the fact that Bank of England (BoE) Chief Economist Andy Haldane made a dovish speech on Friday, the British asset edged higher versus many of its major peers. Haldane stated that a rate cut was more likely than a hike as officials need to combat low inflation. ‘The balance of risks to UK growth, and to UK inflation at the two-year horizon, is skewed squarely and significantly to the downside. Were the downside risks I have discussed to materialise, there could be a need to loosen rather than tighten the monetary reins as a next step to support UK growth and return inflation to target,’ stated Haldane.

This speech had minimal impact on the Pound because it contrasts sentiment from other BoE policymakers. ‘While there is currently considerable uncertainty as to when the Bank of England is likely to start raising interest rates, Andy Haldane’s stance looks isolated within the MPC,’ said Howard Archer of IHS Global Insight. One opinion shared by most officials is that the BoE won’t want to hike the cash rate ahead of the Federal Reserve, so the Federal Open Market Committee’s (FOMC) decision to hold the cash rate has added downside risks. However, the Pound strengthened against its major peers as Friday’s European session progressed which is likely the result of traders speculating that the UK’s low inflation is transitory, a feeling echoed by Governor Mark Carney.

The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.3705.

EUR/GBP Conversion Rate Predicted to Soften amid Speculation of ECB Policy Easing

After the FOMC opted to hold the cash rate, the shared currency softened despite the recent emergence of negative correlation with the US Dollar. The depreciation can be linked to speculation that the Fed’s rate delay will make it easier for the European Central Bank (ECB) to expand quantitative easing in order to combat diminishing price pressures and overvaluation. ‘The (ECB) governing council has flagged its capacity to react if risks materialize, especially by changing the duration or the composition of its asset purchase program,’ stated European Central Bank Executive Board member Benoit Coeure.

European economic data had minimal impact on the shared currency with traders digesting the dovish Federal Reserve policy outlook. July’s Eurozone Current Account dropped from 24.9 billion to 22.6 billion, but increased from 30.6 billion to 33.8 billion on a non-seasonally adjusted basis.

The Pound Sterling to Euro (GBP/EUR) exchange rate dropped to a low of 1.3611 today.

Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast to Fluctuate on Market Sentiment

With a plethora of British and European economic data publications over the coming week, the Pound Sterling to Euro (GBP/EUR) exchange rate is likely to fluctuate. With that being said, however, the current market conditions and global economic uncertainties point towards market volatility as a result of changes in risk-sentiment.

Traders will be focussing on any news from either the Bank of England or the European Central Bank to ascertain policy stances following the dovish Fed outlook. The common currency is likely to come under downwards pressure as traders speculate President Mario Draghi will look to expand stimulus in order to combat the absence of price pressures.

The Pound Sterling to Euro (GBP/EUR) exchange rate reached a high of 1.3713 during Friday’s European session.