Euro Pound (EUR/GBP) Exchange Rate Weak as BoE Rate Hike Looms
The Euro Pound (EUR/GBP) exchange rate fell sharply this morning as investors brace for the Bank of England (BoE) interest rate decision today.
At the time of writing the EUR/GBP exchange rate is trading at around $0.8719, which is down about 0.2% from this morning’s opening rate.
Pound (GBP) Strengthens ahead of BoE Rate Decision
The Pound (GBP) has jumped higher this morning as markets anticipate a strong interest rate rise from the Bank of England later today.
Investors expect the BoE to hike rates by 75bps, which would fall in line with other central banks’ recent aggressive tightening, with markets pricing in a 90% chance of such a rise. Many economists fear that without a 75bps that the Pound will continue to slip in the markets.
However, higher interest rates could put considerable strain on the UK economy and serve to exacerbate borrowing costs.
Kallum Pickering, senior economist at Berenberg suggests this concern could see investors opt for a lesser hike of 50bps:
‘While 75bp is far from inconceivable, 50bp remains more likely, in our view.’
The uncertainty of which way the BoE will fall is limiting GBP gains this morning.
Euro (EUR) Bolstered as Russia Fears Ease
While the Euro (EUR) is down against Sterling, it’s ticking higher against some of its peers today as fears surrounding the Ukrainian war begin to ease. A pullback of the US Dollar (USD) is also helping to limit the Euro’s losses against the Pound.
The Euro found some support during this morning’s trade as analysts began to weigh in on Vladimir Putin’s ‘partial mobilisation’ announcement yesterday.
Analysts are saying that Putin is unlikely to use nuclear weapons and that the mobilisation of his troops could take months. On top of this, Russian civilians are resisting the development and EU officials are committed to putting pressure on Russia.
EU foreign policy chief Josep Borrell said that the action of Putin shows desperation and that he hopes that the sanction package will target:
‘more relevant sectors of the Russian economy and continue targeting people responsible for the war of aggression in Ukraine’.
After being initially shaken following Putin’s announcement yesterday, Euro investors are regaining their nerve today as analysts have somewhat eased fears surrounding Putin’s plans.
Euro Pound Exchange Rate Forecast: EUR/GBP to Weaken Further following BoE Decision?
The Euro Pound exchange rate could weaken further this afternoon as the BoE announces its interest rate decision.
If the bank opts to raise interest rates by 75 basis points, Sterling could strengthen further, although fears about the UK economy may limit the upside. If the BoE decides on a smaller 50bps hike, the Pound could slip.
The Euro, meanwhile, could fluctuate today as speeches from European Central Bank (ECB) policymakers could cause fresh movement.
Looking ahead to tomorrow, the flash PMIs for the UK and Eurozone are due out. Forecasts suggest rather worrying results for both, but the UK’s expected scores are slightly stronger. Any surprise results could cause significant movement.
