An unexpectedly dovish Bank of England combined with the European Commission cutting Europe’s growth forecasts mean the pound euro exchange rate closed the session 0.2% lower just below €1.1600. The pair snapped a three-day winning streak as UK election hopes and German recession fears underpinned the exchange rate.
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Sterling tanked sharply lower on Super Thursday, the day that the BoE revealed its monetary policy announcement, released the minutes to the meeting and released the quarterly inflation report. As analysts widely expected the BoE voted to keep interest rates on hold at 0.75%.
However, the minutes showed that two policy members had unexpectedly voted to cut interest rates. Both Michael Saunders and Jonathan Haskel voted for an immediate 25 basis point cut to interest rates. This means that the central bank is more dovish than what market participants were expecting. The split means that the central bank is closer to implementing a rate cut and this weighed on demand for sterling.
Adding to the gloom the BoE cut growth forecasts for the UK economy amid a weaker global environment and owing to the trade barriers that would take effect immediately on the implementation of Boris Johnson’s Brexit deal.
Today investors will swing their attention back towards the UK general election and Boris Johnson’s performance in the polls. Boris is still comfortably in the lead which should offer some support to the BoE battered pound.
Germany In Recession?
The euro benefited from pound weakness in early trade on Tuesday but was unable to hold onto the gains amid growing concerns over the health of the eurozone economy and particularly Germany.
Data showed that German industrial production took another tumble in September, declining to levels last seen at the beginning of 2017. Production contracted -0.6% month on month in September, well below the -0.3% decline that analysts had predicted. The weak data added to fears that Europe’s largest economy could be heading for its first recession in 6 years.
Adding to the euro’s woes, the European Commission slashed growth forecasts for the bloc amid Brexit uncertainty and ongoing global trade tensions. Growth in the bloc of 1.1% is expected this year and just 1.2% next year. This was down from 1.2% this year and 1.5% next year.
The weaker growth forecasts come as the European Central Bank eased monetary policy to prop up the slowing economy.
Today the economic calendar is fairly quiet. Investors will look towards German trade data to see whether exports have fallen again.
| What do these figures mean? |
| When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written: 1 GBP = 1.13990 EUR Here, £1 is equivalent to approximately €1.14. This specifically measures the pound’s worth against the euro. If the euro amount increases in this pairing, it’s positive for the pound. Or, if you were looking at it the other way around: 1 EUR = 0.87271 GBP In this example, €1 is equivalent to approximately £0.87. This measures the euro’s worth versus the British pound. If the sterling number gets larger, it’s good news for the euro. |
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