After a relatively muted start to the week, volatility in the pound euro exchange rate could pick up today. The pair closed the session on Wednesday flat at €1.1820 after trading within a tight range. Investors are looking cautiously ahead to the highly anticipated Bank of England monetary policy announcement and a slew of eurozone data.
GBP/EUR focused on the BoE rate decision
Pound investors are firmly focused on the BoE rate decision. Investors are currently pricing in a 50 / 50 probability of the central bank cutting interest rates when they announce their decision at midday local time. This will be one of the closest interest rate decisions in recent history as mixed data, an improved political landscape and Brexit uncertainty make it almost impossible for market participants to call.
Whilst retail sales and inflation data disappointed earlier in the month, PMI’s and business optimism impressed, and employment figures were the strongest since 1970.
Of the 9 policymakers, 2 voted to cut rates in the last meeting, Silvana Tenreyo and Jan Vlieghe have since both hinted that they could vote in favour of a rate cut. Mark Carney could go either way. Whilst he sounded dovish at the start of the month, he has sounded more optimistic in recent speeches. It is unclear how the remaining 4 internal policy makers will vote. Although ING analysts believe they won’t vote to cut rates.
Given that the market is only pricing in a 50% probability of rates being cut, that means that the pound could fall sharply if the central bank does decide to ease monetary policy rather than sticking with its wait and see stance.
Today is unlikely to be a quiet day for the euro with several high impacting data releases expected to drive movement in the common currency.
After GFK German consumer confidence figures beat analysts forecasts in the previous session, investors will be watching German labour market data closely. Strong consumer confidence is often tied to a solid jobs market. Unemployment is expected to remain steady at 5%.
The euro could receive a boost from German inflation figures which are expected to show another increase in consumer goods to 1.7% year on year. This is just shy of the target 2% level.
| 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. |
