GBP/USD: BoE Dented Demand For Pound
  • Pound (GBP) underpinned by Brexit optimism. But no deal agreed
  • BoE expected to keep rates on hold.
  • Euro (EUR) lifted by USD weakness, stronger data
  • Eurozone CPI in focus

The Pound Euro (GBP/EUR) exchange rate is extending gains on Thursday. The pair settled flat on Wednesday at €1.1071, after surging to €1.1119 earlier in the session. At 05:15 UTC, GBP/EUR trades +0.2% at €1.1089.

Brexit optimism supports the Pound with the latest reports indicating that there has been some progress. However, a deal is yet to be agreed with fishing as the main obstacle.

UK annual inflation for November was a lackluster 0.3%, down from 0.7% in October and well short of the 0.6% expected. Core inflation also fell short of estimates at 1.1%

Attention will now turn to the Bank of England monetary policy announcement due later today. The announcement will come to a backdrop of Brexit uncertainty and tightening covid restrictions. After expanding its QE programme by £150 billion in November and extending it until the end of 2021, the central bank is not expected to act today. By early next year the central bank will have further clarity on the covid vaccine rollout prograamme and how Brexit is shaping up.

The BoE could give guidance over measures it would take should the economy deteriorate at the turn of the year with Brexit and tighter covid restrictions.

The Euro traded firmly in the previous session, supported by a weaker dollar once again and by upeat data from the region. The manufacturing and service sector PMIs showed that the economic performance of the bloc far exceeded expectations in December despite a renewed lockdown restriction in several countries.

The composite PMI which is considered a good guage of economic health rose to 49.8 this month, up from November’s 45.3. This was just short of the 50 level which separates expansion from contraction.

Looking ahead Eurozone inflation, as measured by the consumer price index will be in focus. Expectations are for disinflation -0.3% month on month in November to be confirmed.