Euro Pound (EUR/GBP) Exchange Rate Climbs as BoE Post Dovish Hike
The Euro Pound (EUR/GBP) exchange rate is climbing today, following a dovish interest rate hike from the Bank of England (BoE).
At the time of writing, EUR/GBP is trading at around £0.8633, rising by over 0.3% from the morning’s opening rates.
Pound (GBP) Sinks as BoE Post Dovish Hike
The Pound (GBP) is enduring heavy selling pressure today, following a perceived dovish hike from the Bank of England.
The BoE raised interest rates by 25bps, in line with market expectations, but provided a downbeat spate of forecasts. The BoE predict that growth in the UK economy would remain anaemic, but that inflation would fall rapidly.
In an accompanying report, the bank stated:
‘CPI inflation remains well above the 2% target. It is expected to fall significantly further, to around 5% by the end of the year, accounted for by lower energy, and to a lesser degree, food and core goods price inflation.’
Furthermore, the sour market mood is likely bringing further pressure to the increasingly risk-sensitive Pound.
Euro (EUR) Capped by Cooling PPI
The Euro (EUR) is seeing its gains capped this morning, following sharper-than-forecast cooldown in June’s producer price index.
On a monthly basis, PPI was found to have cooled by 0.4%, further than what economists had anticipated to be a 0.2% cooldown.
As such, ivnestors are further paring back their bets on further interest rate hikes from the European Central Bank (ECB).
Inflation in the Eurozone has appeared to have turned a corner, while the bloc’s economy appears to be on a downward path. Because of this, arguments from ECB policymakers which campaign for keeping rates at higher levels for longer over further hikes seem to be holding more water.
For instance, ECB Board Member Fabio Panetta outlined in a speech that keeping rates elevated would be more beneficial.
Panetta stated that:
‘Emphasising persistence may be particularly valuable in the current situation, where the policy rate is around the level necessary to deliver medium-term price stability, the risk of a de-anchoring of inflation expectations is low, inflation risks are balanced and economic activity is weak.’
Elsewhere, the risk averse market mood is likely keeping the common currency afloat against its peers. Due to the Euro’s safe-haven stature, the sour mood is benefitting the single currency.
EUR/GBP Exchange Rate Outlook: German Factory Orders Fall to Dent EUR?
Looking ahead for the Euro, tomorrow brings the release of the latest German factory orders data. Orders are forecast to have plummeted by 2%, which could weigh on the single currency, by indicating weakness in the EU’s largest economy.
This is then followed by the latest retail sales data for the Eurozone. A monthly increase of 0.2% is forecast over June which could negate these losses by indicating resilient consumer spending.
Elsewhere, the market mood is likely to play a role in driving the pairing. As a safer asset, downbeat trade could strengthen EUR/GBP further.
Meanwhile, the Pound is likely to endure further volatility tomorrow. With the UK economic outlook deteriorating, additional analysis may weigh heavily.