Euro Pound (EUR/GBP) Exchange Rate Falls as Investors Await BoE Decision
The Euro Pound (EUR/GBP) exchange rate is weakening this morning, as investors await the Bank of England’s (BoE) latest interest rate decision.
At the time of writing, EUR/GBP is trading at around £0.8681, a fall of roughly 0.2% from the morning’s opening rates.
Pound (GBP) Underpinned Ahead of BoE Rate Hike
The Pound (GBP) is being underpinned by steadily advancing rate hike bets this morning. The Bank of England (BoE) are scheduled to deliver their interest rate decision at noon, where markets anticipate a 25bps hike.
The point of contention amongst investors, and a potential cap on GBP’s gains so far, is where the BoE will go next. Some economists expect a hawkish tilt, with the door being left open for future tightening as the BoE tries to tackle sky-high inflation.
However, some are less convinced of this, predicting inflation to begin to fall soon. Ellie Henderson, an Economist at Investec, commented:
‘As things stand and considering the sharp downward influences on inflation in the coming months, namely from energy but also from cooling food and goods price inflation, we suspect that this could be the last hike by the Bank of England in this cycle.’
If the BoE does take this path, it could be perceived as dovish and weigh on Sterling despite the hike. Elsewhere, a mixed market mood may be capping GBP due to its increasingly risk-sensitive nature.
Euro (EUR) Struggles amid Thin Data Calendar
The Euro (EUR) is struggling for support this morning, as a lack of impactful data drivers leaves the single currency vulnerable.
The key weight on EUR appears to be its negative correlation with the US Dollar, which is rallying this morning. Generally, when the ‘Greenback’ is on the up, the Euro struggles to gain ground against its peers.
However, yesterday’s raft of hawkish comments from European Central Bank (ECB) policymakers may be serving to buoy EUR.
EUR/GBP Exchange Rate Forecast: UK GDP in Focus
Looking beyond this afternoon’s interest rate decision, the core catalyst of movement for GBP may come from tomorrow’s GDP data.
Economists forecast that the UK economy expanded by 0.1% in Q1 on a quarterly basis. This could bring cheer to GBP investors by indicating that the UK has managed to avoid a recession.
Furthermore, it may inspire further rate hike bets as it indicates resilience in the UK economy. However, any gains may be tempered by a month-on-month stall.
For the Euro, European Central Bank policymaker Isabel Schnabel is scheduled to speak this afternoon.
As a more hawkish member of the ECB, she may advocate for continued tightening. This could bring support to EUR.
Elsewhere, data releases are thin on the ground. Because of this, external factors are likely to be the main drivers of movement for the single currency.
