Euro Pound (EUR/GBP) Mixed as Markets await BoE Interest Rate Decision
The Euro Pound (EUR/GBP) exchange rate is moving without a clear trajectory this morning ahead of the Bank of England’s (BoE) monetary policy update, due this afternoon.
At the time of writing the EUR/GBP exchange rate is trading at £0.8552, virtually unchanged from this morning’s opening rate.
Pound (GBP) Fluctuates ahead of Central Bank Interest Rate Decision
The Pound (GBP) is mixed this morning ahead of the Bank of England’s monetary policy vote this afternoon.
Markets are widely expecting the central bank to deliver a fifth consecutive interest rate hold of 5.25% later today, keeping interest rates close to a sixteen-year high.
Following on from February’s vote split, in which six policymakers voted for a hold, two for a hike and one for a cut, markets are eager to see whether the consensus amongst policymakers could have shifted towards a more dovish one.
In the wake of yesterday’s cooler-than-forecast UK inflation reading, a signal towards looser monetary policy in the coming months could sink the Pound this afternoon.
Henk Potts, Market Strategist at Barclays Private Bank, said that the BoE is likely to adopt a more aggressive rate cutting strategy going into the summer months as inflation eases:
‘Headline CPI is expected to fall below the central bank’s 2% target level later in the year, with unemployment climbing to 4.5% in the final quarter.
These could pave the way for a pivot to an easing stance by the May meeting, with the first 25bp rate cut pencilled in for June. With more to follow, we anticipate that the Bank Rate will finish the year at 4%’
Euro (EUR) Wavers following Mixed PMIs
The Euro (EUR) is struggling to attract investor support following a lacklustre set of Purchasing Managers Indexes (PMI) this morning.
The preliminary readings showed a larger-than-forecast expansion in the Eurozone’s vital services sector in March, surpassing estimates of 50.5 and reaching 51.1. This marked the largest expansion in services activity since June 2023, boosting hopes of recovery in the bloc’s services economy after a period of dismal growth.
However, the manufacturing PMI fell to a three-month low, contracting further than anticipated to 45.7, rather than edging higher 47. The dismal reading served to undermine EUR’s upside, pointing to lopsided economic recovery.
Elsewhere, risk-on flows are preventing the safe-haven common currency from edging higher against its peers, as investors favour its more risk-sensitive competitors.
Euro Pound Exchange Rate Forecast: Eyes on BoE Policy Update
Coming up, this afternoon’s BoE interest rate decision will be the most notable impetus behind GBP exchange rates. A split vote, leaning towards more dovish policy in the coming months, could see Sterling slump against its major peers.
For the Euro, the release of Germany’s Ifo business climate index for March could drive EUR volatility. While forecast to marginally increase to 86, from last month’s 85.5, sentiment is due to hold close to a three-and-a-half-year low. Yet another dismal reading could see the Euro falter, amid further concerns about the health of the Eurozone’s largest economy.
Speeches from ECB policymakers Philip Lane and Claudia Buch are also due on Friday afternoon. Further dovish rhetoric may sink EUR amid surmounting rate cut speculations.
