The Pound dropped sharply against the Euro yesterday and could face further difficulty ahead, depending on trader sentiment.
This was triggered by an unexpectedly negative economic outlook from the Bank of England, which traders had not planned for.
- Pound previously battered by BoE outlook – Interest rate hike failed to trigger GBP rally
- Euro strengthened by higher Eurozone manufacturing – Fewer unemployed in Germany
- Pound could worsen on services stats – Will Euro fluctuate on Catalan crisis?
The Euro was able to capitalise on Pound weakness yesterday, rising by 1.8% in the pairing during the afternoon.
Pound Sent Tumbling by Dovish BoE Plans
Yesterday should have seen the GBP/EUR exchange rate rally, given that the Bank of England (BoE) finally raised interest rates for the first time in over a decade.
The increase from 0.25% to 0.50% was widely priced in and put rates back to their pre-EU Referendum levels.
As it stood, the Pound crashed against the Euro and all other currency peers. This was down to the BoE’s forecasts, which were largely dovish in their outlook.
One of the day’s biggest statements came from BoE Governor Mark Carney himself, who was giving a press conference after the rate announcement.
Warning about speculation on further near-term interest rate hikes, Carney said;
‘To be clear, even after today’s rate increase, monetary policy will provide significant support to jobs and activity.
The MPC continues to expect that any future increases in interest rates would be at a gradual pace and to a limited extent’.
The words “gradual” and “limited” were the key takeaways here and led some economists to conclude that this rate hike could be the last one for a while.
Euro Firmed on Higher Eurozone Manufacturing Score
While the Pound was crushed under the weight of negative trader sentiment yesterday, the Euro was conversely sent soaring.
The Pound was weak to begin with, but the Euro was also helped out in the pairing by news of rising Eurozone manufacturing activity.
While Eurozone manufacturing didn’t rise as much as expected in October, it still appreciated from 58.1 points to 58.5, almost hitting the forecast 58.6 points.
Euro traders were also given good news from Germany, where it was reported that the number of unemployed persons had fallen by -11k in October.
Pound may Fall Further on UK Services Sector Data
The Pound’s disastrous end-of-week decline could continue today, regardless of how UK domestic data turns out.
If traders remain focused on the Bank of England’s (BoE) gloomy forecast today, the Pound could see a continuation of Thursday’s losses.
The morning’s UK domestic data, covering services sector and overall composite activity measures, isn’t expected to be supportive either.
Expectations are for lower reported services sector activity, along with a slowdown in the growth of the composite index.
There is little high-impact Eurozone data this morning, so the Euro could instead be affected by any Spanish political news.
Yesterday saw the Spanish government issue a European arrest warrant for ex-Catalonian President Carles Puigdemont; the former President is currently in Belgium.
If it looks like Puigdemont could be extradited to Spain to face trial, protests could erupt in Catalonia and trigger a brief devaluation of the Euro.
Recent Interbank GBP EUR Exchange Rates
At the time of writing, the Pound to Euro (GBP EUR) exchange rate was trading at 1.1234 and the Euro to Pound (EUR GBP) exchange rate was trading at 0.8898.
