The Pound-Euro rate could extend gains if BoE officials reinforce expectations for further hikes, while weak German and Eurozone data may weigh on the Euro.
The Pound Euro (GBP/EUR) exchange rate rose on Thursday as the Bank of England (BoE) increased interest rates and hinted at further hikes ahead.
At the time of writing, GBP/EUR was trading at €1.2008, close to its recent 18-month high and up around 0.2% from the start of the European session.
Pound to Euro (GBP/EUR): 1.20012 (+0.05%)
Euro to Dollar (EUR/USD): 1.123418 (-0.01%)
DAILY RECAP:
The Pound (GBP) initially faced mixed movement on Thursday as GBP investors braced for the BoE’s interest rate decision.
Sterling then strengthened in the wake of the announcement, as markets interpreted the bank’s decision as hawkish.
The BoE raised rates by 25 basis points, with policymakers voting unanimously to tighten monetary policy and one official voting for a larger 50bps hike.
In addition to the hawkish voting split, the bank’s accompanying commentary and remarks from BoE Governor Andrew Bailey also strongly hinted at further interest rate hikes in the future due to upside inflation risks.
With the bank striking a more hawkish tone than markets anticipated, the Pound attracted fresh demand in the wake of the decision.
Meanwhile, the Euro (EUR) trended lower on Thursday, with the common currency coming under pressure due to its strong negative correlation with the US Dollar (USD), which staged a recovery.
However, the Euro was able to avoid steeper losses thanks to some positive economic data. German factory orders rebounded 4.4% in September. While this wasn’t as strong as expected, it still represented a decent recovery in activity.
Additionally, Eurozone producer price inflation accelerated in September, which also helped to cushion the common currency.
Near-Term GBP/EUR Forecast: Weak Data to Drive the Euro Lower?
Looking forward, Friday kicks off with Germany’s latest industrial production figures. With output in the Eurozone’s largest economy set to have stalled in September, the Euro could come under pressure.
The single currency could encounter additional headwinds later in the session with the publication of the Eurozone’s latest retail sales figures. Sales growth in the bloc is expected to have contracted in September, which may raise further concerns about the Eurozone’s economic health.
As for the Pound, a speech from BoE Chief Economist Huw Pill could influence Sterling. If he outlines an appetite for further interest rate hikes, GBP may strengthen.
Our currency coverage draws on live market data, official economic releases and published bank research.
