British Pound to Euro Forecast: GBP Falls Despite Hawkish Bank of England Vote

– Written by


David Woodsmith

STORY LINK British Pound to Euro Forecast: GBP Falls Despite Hawkish Bank of England Vote

The Pound Euro (GBP/EUR) exchange rate weakened on Thursday after the Bank of England left interest rates unchanged, while stronger-than-expected Eurozone data supported the single currency.

At the time of writing, GBP/EUR was trading at around €1.1655, close to its lowest levels in four weeks.

The Pound (GBP) struggled to attract support on Thursday despite a more hawkish-than-expected Bank of England interest-rate decision.

As widely forecast, the BoE left Bank Rate unchanged at 3.75%.

However, the Monetary Policy Committee voted 6–3 in favour of holding rates, with three policymakers preferring an immediate 25-basis-point increase. Economists had generally expected only two members to support a hike.

The Bank warned that volatile energy prices and continuing tensions in the Middle East could push inflation higher over the coming months.

Its central forecast showed inflation rising to 3.2% later this year, although policymakers stressed that there remained substantial uncertainty surrounding the energy outlook.

Nevertheless, Sterling failed to sustain an advance following the announcement.

UK gilt yields moved lower and investors focused on the Bank’s broader wait-and-see stance, limiting demand for the Pound.

The Euro (EUR) strengthened on Thursday after the latest Eurozone growth figures exceeded expectations.

The bloc’s economy expanded by 0.4% during the second quarter, comfortably above forecasts for growth of 0.2% and following stagnation during the opening three months of the year.

The stronger reading indicated that the Eurozone economy remained resilient despite higher energy costs and uncertainty surrounding the conflict in the Middle East.

Germany, France and Italy each recorded quarterly growth of 0.2%, while the Spanish economy expanded by 0.7%.

The Euro received additional support after Germany’s preliminary inflation rate accelerated from 2.4% to 2.8% in July, matching market forecasts.

The increase was driven primarily by higher energy prices, strengthening expectations that the European Central Bank could raise interest rates again later this year.

Near-Term GBP/EUR Forecast: Eurozone Inflation in Focus

Looking ahead, Friday’s preliminary Eurozone inflation figures are likely to provide the next significant catalyst for the Pound Euro exchange rate.

Headline inflation is forecast to accelerate, reflecting the recent increase in energy prices.

A stronger-than-expected reading could reinforce expectations of another European Central Bank interest-rate hike and place further pressure on GBP/EUR.

Conversely, evidence that underlying inflation remains contained could limit the Euro’s gains.

For the Pound, investors will continue to assess the Bank of England’s divided vote and the potential impact of higher energy costs on UK inflation.

The three votes for an immediate rate hike should offer Sterling some protection.

However, GBP/EUR may remain vulnerable unless markets become more confident that the BoE will tighten policy before the European Central Bank.

Like this piece? Please share with your friends and colleagues:

International Money Transfer? Ask our resident FX expert a money transfer question or try John’s new, free, no-obligation personal service! ,where he helps every step of the way,
ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Euro Forecasts