- Pound (GBP) fall in Omicron fears ahead of BoE
- BoE is under pressure to hike rates as inflation surges
- Euro (EUR) rises ahead of central bank meeting
- ECB has been the more dovish central bank
The Pound Euro (GBP/EUR) exchange rate is edging lower on Thursday, extending losses from the previous session. The pair settled -0.06% lower on Wednesday at €1.1749 up from the low of the day of €1.1724. At 05:45 UTC, GBP/EUR trades -0.11% at €1.1736.
The Pound moved lower on Wednesday despite UK inflation rising to the highest level in a decade. According to the latest data from the Office of National Statistics the consumer price index surged higher to 5.1% year on year in November. This was up from 4.2% in October and well ahead of analysts forecasts of 4.8%.
Normally inflation at these levels combined with a solid labour market would prompt speculation of a sooner move to hike rates by the BoE.
However, Omicron fears are gathering pace as the number of daily infections surges to 78,000. The threat of Omicron, and more lockdown are clouding the outlook for the UK economy which will most likely prevent the Bank of England from hiking interest rates.
The BoE will give its monetary policy announcement later today. The broad expectation is that policy makers will push back until February, buying time to assess the impact of Omicron on the economy. The problem being that in the meantime, inflation is could well continue rising.
In addition to the BoE’ interest rate decision, the European Central Bank will also be giving their rate decision.
The ECB has been one of the most dovish major central banks recently. They are not expected to raise interest rates next year. Despite inflation in the region reaching 4.9% a 30 year high, the ECB continue to insist that they consider inflation to be transitory.
The ECB could announce plans to end the Pandemic Emergency Purchasing Programme in March next year. However, the ECB could also announce an increase in APP asset purchase programme, a more flexible programme to soften the blow.
A dovish sounding ECB next to a BoE keen to hike rates early next year could see the Pound rIse against the Euro.