The euro to the pound interbank exchange rate has hit 0.8531 in the last day. This is its highest since the start of this week, or since Monday 6th January.
By comparison, on Wednesday 8th January, the Eurozone’s common currency was as weak as 0.8458 versus sterling, so it’s since strengthened by close to 0.75 cents, or by 0.86%.
The EUR to GBP interbank exchange rate has risen in value, in part because, yesterday, Bank of England (BoE) Governor Mark Carney unexpectedly suggested that the UK’s central bank could cut interest rates in the foreseeable future.
Speaking at a BoE Research Workshop on Thursday 9th January, Mr. Carney said that, if the UK’s economic growth doesn’t pick up, there might be a “relatively prompt response” from the central bank.
In particular, the BoE Governor remarked that "There is a debate at the MPC over the relative merits of near term stimulus to reinforce the expected recovery in UK growth and inflation."
This implies that the BoE might cut interest rates in the coming weeks or months below their current 0.75%, back to their all-time low of 0.5%. In turn, this would cut the cost of a loan for British businesses and households, thereby supporting the UK economy, yet simultaneously tends to weaken the value of sterling.
In response to Mr. Carney’s comments, Samuel Tombs, UK Economist at Pantheon Macroeconomics, said that “the Governor knows what kind of reaction he will get by mentioning the stimulus debate; clearly he at least still is wavering, despite the election result."
BoE May Keep Interest Rates Steady, if UK Economy Enjoys “Boris Bounce”
However, it’s worth noting that the BoE’s interest rate cut this year is not guaranteed. In particular, this is because, following the Conservative Party’s election victory in December, there are growing signs that the UK economy is accelerating.
For example, in IHS Markit’s UK services PMI (Purchasing Managers’ Index) for December this week, the economics watchdog noted that UK businesses feel more confident, following Prime Minister Boris Johnson’s win at the polls.
Similarly, according to Halifax’s house price data for December, UK property prices rose by 1.7% month-on-month, the fastest rise in almost 13 years, while on a yearly basis, prices increased by 4%.
So this bodes well for the UK’s economy in 2020. If economic data in the coming weeks confirms this trend, this may convince the BoE to maintain UK interest rates where they are, at 0.75%. In turn, this could impact the value of the pound.
Releases Next Week Include UK Inflation, ECB Policy Meeting Accounts
Turning to next week, key UK economic releases include inflation statistics for December, released on Wednesday 15th January at 09.30 GMT, and retail sales figures for last month, which go public on Friday 17th January at 09.30 GMT.
Meanwhile, in the Eurozone, we’ll learn the European Central Bank’s (ECB) Policy Meeting Accounts, on Thursday 16th January at 12.30 GMT. All these releases have the potential to affect the euro to the pound interbank exchange rate.
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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or Contact Us.