• Pound (GBP) fell despite BoE rate hike
  • BoE raised interest rates by 25 basis points
  • Euro (EUR) fall rises despite little encouraging data
  • Peace -talks remain in focus

The Pound Euro (GBP/EUR) exchange rate is edging higher, paring some of the losses from the previous session. The pair lost -0.52% on Thursday, settling at €1.1851 after trading a 100 pip range between €1.1825 – €1.1925. At 05:45 UTC, GBP/EUR trades +0.2% at €1.1875. The pair is set to lose 0.6% across the week, its second straight week of declines.

The Pound fell yesterday even though the Bank of England raised interest rates by 0.25% to 0.75% as the BoE predicts that surging inflation will now reach 8% next month and could be significantly higher by October.

The jump in inflation is down to soaring energy prices, firstly as Ofgem’s energy cap is removed next month due to higher wholesale energy prices. And then secondly, the Ukraine crisis has driven wholesale prices even higher.

The bank warned that the developments in Ukraine would boost inflation at the same time as slowing growth. This means that the outlook is uncertain, which promoted the BoE to adopt a more dovish tone.

The BoE’s rate hike was the third hike in as many meetings. However, only eight of the nine policymakers voted for the hike. Therefore, it was slightly more dovish than what the market was expecting, which sent the pound lower.

Today there is no high impacting UK data, meaning that sentiment will likely drive the pound.

The Euro pushed firmly higher yesterday across the board. The euro managed to gain ground despite the latest reports from the peace talks being very mixed. Today, the euro is coming under pressure as there is still little clarity over whether there has been much progress in talks, as they move into the fourth day.

Looking ahead, investors will continue monitoring peace talks developments carefully. The eurozone economic calendar is quiet, with just trade balance figures due.