Pound Edges Higher vs. Euro On BoE Optimism
  • Pound (GBP) lifted by BoE’s hawkish tilt
  • Inflation expected to hit 4% but be transitory
  • Euro (EUR) under pressure despite strong German factory orders
  • German industrial production due

The Pound Euro (GBP/EUR) exchange rate is advancing on the final trading day of the week. The pair settled higher on Thursday for the third straight session. The pair settled +0.3% at €1.1767. At 05:45 UTC, GBP/EUR trades +0.05% at €1.1773. The pair is set to rise 0.5% on the week marking its third consecutive week of gains.

The Pound rallied following a more hawkish than expected Bank of England, even though policy was kept unchanged. The central bank voted 8-0 to keep interest rate on hold at 0.1%. Policy makers voted 7-1 to keep the asset purchases unchanged at £895 billion. The lone dissenter was as expected, Michael Saunders.

The BoE also upwardly revised its inflation outlook from 2.5% to 4%, although it does expect inflation to decline back to 2% over the medium term. This is in line with other major central banks and the “transitory” rhetoric.

Interestingly, the BoE lowered its rate at which it will start to reduce their bonds stock to 0.5%, down from 1.5%. BoE Governor suggested if it was left at 1.5% then simply it might never happen. He also highlighted the usefulness of a predictable path for undoing QE, saying the BoE would take this path if necessary. Analysts are now expecting a rate hike in Q3 2022 rather than early 2023. As a result the Pound rallied.

The Euro traded under pressure in the previous session amid a relatively quiet day on the economic calendar. German factory orders attracted some attention as orders bounce back in June. Data by Destatis, the German Federal Statistics office showed that new orders rose 4.1% month on month, analysts had expected a 1.9% rise.

Germany will remain under the spotlight again today as industrial production numbers for Europe’s largest economy are due. Analysts are expecting onth on month growth of 0.5% and annual growth of 11%.