- Pound (GBP) plunges post-BoE
- BoE warned over a recession
- Euro (EUR) gains after hawkish ECB comments
- No high impacting data due
The Pound Euro (GBP/EUR) exchange rate is falling at the start of the week. The pair fell -1.9% across last week, settling on Friday at €1.1695 after trading in a range between €1.1638 – €1.1952. At 05:45 UTC, GBP/EUR trades -0.05% at €1.1681.
The pound fell last week despite the Bank of England raising interest rates by 0.25% as forecast. The vote by the monetary policy committee was more hawkish than the market was expecting, with three policymakers sufficiently concerned over inflation levels to vote to raise interest rates by 50 basis points. Usually, a more hawkish vote lifts the pound higher. However, BoE governor Andrew Bailey downwardly revised growth forecasts for the UK, raising fears of stagflation. He also warned of the UK heading into recession amid the cost of living crisis and the fallout from the Russian war.
The BoE is in a difficult position with doubts growing over how much more the BoE will be able to raise interest rates going forwards. The central bank will need to choose between reining in 30-year high inflation and raising interest rates or supporting the Uk economy.
There is no high impacting UK economic data due to be released today. Looking ahead in the week, the Office of National Statistics will release UK GDP data which is expected to show that the British economy grew at a slow pace in March, after a stronger start to the year.
The euro rose at the end of the last week amid growing momentum for the July interest rate hike. The European Central Bank has typically been one of the least hawkish central banks, still tapering bond purchases expected to end in Q3. The central bank had previously said that it would start hiking rates sometime after the bond purchases end.
However, more recently, as inflation continues to rise to a record level, ECB policymakers have been keen to hike sooner.
There is no high impacting Eurozone data due today, so the sentiment is likely to drive the euro.