Euro pound (EUR/GBP) rangebound as markets await BoE update
The euro pound (EUR/GBP) exchange rate is trading without a clear direction this morning ahead of the Bank of England’s (BoE) hotly anticipated interest rate decision, due this afternoon.
At the time of writing the EUR/GBP exchange rate is trading at €0.8595, virtually unchanged from this morning’s opening rate.
Pound (GBP) slumps ahead of BoE interest rate decision
The pound (GBP) struggles to gain traction this morning as markets anticipate the Bank of England’s looming monetary policy meeting.
While the central bank is widely expected to deliver a sixth consecutive hold on interest rates, the focus this afternoon may lie on the BoE’s forward path.
Any dovish signals could sink Sterling, offering credence to market speculations that the central bank is most likely to begin its unwinding cycle in the summer months.
Furthermore, any policymaker dissent may further ramp up rate cut bets, should voter consensus lean dovish.
Economists at RBC Capital Markets noted:
‘The Bank has clearly signalled that the next move in Bank Rate will be down without giving much indication of when that move is likely to come. Yet despite Governor Bailey’s attempt in the wake of the March meeting to indicate that this meeting and the next one in June were ‘live’ the market is currently only pricing around half a full 25bps rate cut over the next two meetings.’
Euro (EUR) muted prior to ECB speeches
The euro (EUR) is wavering this morning amid a lack of macroeconomic releases.
In the absence of any notable data from the Eurozone through the remainder of the session, the common currency will likely be driven primarily by commentary due later today from European Central Bank (ECB) policymakers.
A speech from ECB Vice President Luis de Guindos could apply pressure to EUR exchange rates this afternoon, given his consistently dovish stance in recent months.
In line with Guindos’ dovish stance, markets speculate that the central bank will begin its unwinding cycle in June, while banks within the Eurozone begin to unwind domestic monetary policy. As such, investors will likely be on the lookout for any further signals from the senior ECB rate-setter that a summer rate cut remains likely.
Michael Brown, FX analyst at Pepperstone, commented:
‘Data elsewhere suggests that cuts are coming much sooner, and likely to a much greater degree. The SNB, for instance, have already kicked off their own easing cycle, having delivered a 25bp cut in March, with Swiss inflation having reached the bottom of the target band.’
Elsewhere, an unclear market sentiment further stymies the safe-haven EUR, leaving the common currency to face headwinds amid this morning’s thin trading conditions.
Euro pound exchange rate forecast: BoE in spotlight
Looking ahead, the BoE’s interest rate decision and forward guidance will be the core catalyst of movement for GBP exchange rates this afternoon. Any indication of imminent monetary loosening will likely dent the pound, as investors favour its stronger rivals. Alternatively, should the central bank push back against summer rate cuts, Sterling could gain ground against its peers.
Looking to the Eurozone, speeches from Guindos and his cohort Piero Cipollone could sway EUR. Any dovish rhetoric may see the common currency falter as the session draws to a close.
