GBP/EUR: UK Politics & German Sentiment Data To Drive Movement
  • Pound (GBP) slips ahead of BoE rate decision
  • BoE expected to raise rates to 0.5%
  • Euro (EUR) rises ahead of ECB meeting
  • EUR saw record inflation in January

The Pound Euro (GBP/EUR) exchange rate is edging lower on Thursday after two days of gains. The pair rose +0.1% on Thursday, settling at €1.2010 towards the high of the day.. At 05:45 UTC, GBP/EUR trades -0.12% at €1.1995.

The pound drifted higher in the previous session as investors looked ahead to today’s Bank of England interest rate decision. Expectations are running high that the BoE will raise interest rates for a second time in under two months. The UK central bank is expected to raise rates to 0.5% as inflation in the UK surges to its highest level in 30 years.

The UK jobs market is in good shape with wage growth strong. Energy prices, which have been a key factor driving prices northwards, are still set to push higher taking inflation with it. Giving the BoE plenty of reasons to think that inflation won’t be that transitory.

Investors will also be looking for comments on the central bank’s bond buying programme. The BoE had committed to £895 billion to its QE, but when will it look to starting quantitative tightening. A hawkish Fed could send the pound higher.

The euro came under pressure in the previous session despite inflation surging to a record high of 5.1% year on year in January. This was up from 5% in December and well ahead of the fall to 4.4% that analysts had penciled in. The rise in inflation will pile the pressure on the European Central Bank to adopt a more hawkish tone in their meeting today.

The ECB are the most dovish of the major central banks, sticking to the verse that high inflation is transitory. The central bank blame high inflation on supply side constraints which they can do little about. The labour market in the eurozone still has plenty of slack with unemployment at 7%.