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Sterling Vs Euro Rises, as Markets Unsure if BoE Will Cut

Market CommentarySterling Vs Euro Rises, as Markets Unsure if BoE Will Cut
Sterling Vs Euro Rises, as Markets Unsure if BoE Will Cut

The pound to euro interbank exchange rate stands at 1.1753 today. By comparison, back on Tuesday 14th, sterling was as low as 1.1638 versus the Eurozone’s common currency. So it’s since strengthened by 0.99%, or by over one cent.

The GBP to EUR interbank exchange rate has strengthened, in part because the financial markets are increasingly unsure if the Bank of England (BoE) will cut UK interest rates, when it announces its next decision on January 30th.

Were the BoE to cut borrowing costs below their current 0.75%, it would be back down to 0.5%, their all-time low.

Until recently, the world’s money managers were increasingly convinced that the Old Lady of Threadneedle Street, as the BoE is affectionately known, would cut interest rates toward the end of this month.

This is because, for example, BoE Governor Mark Carney told a Research Workshop last Thursday that, if UK economic growth doesn’t pick up in early 2020, this could prompt a “relatively prompt response” from the central bank.

Mr. Carney’s colleagues at the BoE, Silvana Tenreyro, Gertjan Vlieghe and Michael Saunders have since echoed his remarks.

GBP to EUR Gains, as Markets Uncertain if BoE Will Cut

However, the financial markets now seem increasingly unsure if the BoE will ease UK monetary policy on January 30th, in spite of these policymakers’ remarks.

In part, this is because the are growing signs of “green shoots” in the economy, meaning that it looks like GDP (Gross Domestic Product) growth might pick up.

In particular, this is because many UK businesses report that they feel more confident, following the Conservative Party’s decisive win at the general election last month.

It’s thought that this has provided a measure of predictability to the UK’s economic and political outlook, and regarding Brexit too.

For example, Ned Rumpeltin at TD Securities says that "Our expectation for an on-hold policy decision should help stem further GBP weakness. The reason for holding off on easing though is the expectation that growth will stage a fairly substantial recovery.”

Meanwhile, Hong Leong Bank Berhad said in a research note that "GBP was the top performer on Thursday... as markets shrugged off a potential BoE rate cut and weak UK data."

So this increasing optimism that the BoE may keep interest rates steady at the end of January has helped strengthen the GBP to EUR interbank exchange rate.

PMIs to Show if There Are UK “Green Shoots”, May Affect Pound

We’ll see if UK economic activity has picked up, at IHS Markit’s “flash” PMIs (Purchasing Managers’ Indices) for January, released next Friday 24th.

These will show if the UK’s crucial services and manufacturing sectors grew faster this month, following the Conservatives’ election win. If so, the BoE may be likelier to stay its hand, which traditionally would support the value of the pound.

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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.

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