- Pound (GBP) plunges post-BoE
- BoE raised rates by 25 bp
- Euro (EUR) gains after hawkish ECB comments
- German industrial output data due
The Pound Euro (GBP/EUR) exchange rate is edging higher after steep falls yesterday. The pair settled -1.2% lower on Thursday at €1.1730 after trading in a range between €1.1703 – €1.1952. At 05:45 UTC, GBP/EUR trades +0.14% at €1.1740. The pair is set to fall 1.5% across the week.
The pound plunged lower in the previous session after the Bank of England monetary policy announcement. As the market was broadly expecting, the central bank raised the interest rates by 0.25%. The hike has taken the benchmarking lending rate to 1%, the highest that it has been in 13 years.
Three of the nine policymakers voted to increase interest rates by 0.5% to tame inflation, making the vote more hawkish than expected, which usually would lift the pound. However, the BoE also warned that inflation would rise to double digits this year, and growth is expected to stall. Fears of stagflation and a recession hit the value o the pound hard.
There is no high impacting UK economic data due to be released today. Sentiment is likely to drive demand for the pound.
The euro pushed higher yesterday despite data revealing that German factory orders dropped sharply in March, by more than expected. German factory orders fell -4.7% month on month in March, down from -0.8% in February. The data highlighted the impact of the Russian war on the German economy.
The euro found support from comments from European Central Bank official Robert Holzmann, who said that the ECB would discuss raising interest rates in the June meeting, although they are unlikely to agree on a rate hike until July.
Today German industrial production data is in focus. Expectations are for industrial output to fall -by 1% month on month in March after rising 0.2% in February. A weaker forecast could raise concerns over the health of the US economy and send stocks lower.
