- Pound (GBP) falls with BoE in focus
- BoE is due to hike rates by 25 basis points
- Euro (EUR) rises after steep falls yesterday
- ECB had an unscheduled meeting
The Pound Euro (GBP/EUR) exchange rate is edging lower on Thursday after strong gains in the previous session. The pair settled 1.26% higher yesterday, at €1.1658, after trading in a range between €1.1463 – €1.1679. At 05:45 UTC, GBP/EUR trades -0.18% at €1.1637.
The pound rose firmly higher in the previous session, paring some of the steep losses from earlier in the week. All eyes are on the Bank of England interest rate decision which is expected to hike rates by a further 25 basis points. This would mark the fourth straight meeting of hikes and would lift the benchmark lending rate to 1.25%.
The hike comes as UK inflation rose to 9% a 40-year high on soaring energy and food prices. The central bank expects CPI inflation to rise to double digits. However, with slowing growth and unemployment ticking higher there are growing concerns that the BoE could tip the UK economy into a recession.
The central bank is in a difficult position with no good options left on the table. Any sign of dovishness could weaken the USD further.
The European Central Bank surprised the markets with an unscheduled emergency meeting to discuss recent market turmoil. Since the ECB interest rate last week, panic started unfolding in the bond market, as investors sold out of peripheral countries, such as Portugal, Greece, and Italy’s government debt, sending yields higher and sparking fears of another debt crisis.
The ECB decided to apply flexibility to its PEPP programme supporting those peripheral more indebted countries, whilst also accelerating the new tool designed to ease anti-fragmentation. Even though the ECB strengthened its commitment to contain eurozone spreads more clarity is needed and this is likely to come in July. Whist the announcement was light in detail it is a step in the right direction.
On the data front, eurozone industrial production improved in April by 0.4% month on month, less than the 0.5% forecast. The weak growth leaves the industry vulnerable to a slowdown in the second half as supply chain disruptions and weaker demand return,
