- Pound (GBP) falls for a third day
- BoE left rates unchanged and but the vote split was narrow
- Euro (EUR) rises after the ECB rate decision
- The ECB left rates unchanged as expected
The Pound-Euro (GBP/EUR) exchange rate is falling for a third day. The pair fell 0.22% in the previous session, settling on Wednesday at €1.1565. It traded between €1.1561 and €1.1614. At 16:30 UTC on Thursday, GBP/EUR trades -0.73% higher at €1.1480.
The pound is falling sharply on Thursday after the Bank of England’s interest rate decision. While the central bank left interest rates unchanged at 3.75%, in line with expectations, the vote was much closer than economists had expected.
The vote was 5-4, with five policymakers voting to leave rates unchanged and four seeking a 25-basis-point cut. Expectations had been for a 7-2 vote split. The actual vote split prompted traders to increase expectations that the Bank of England could cut rates as soon as March.
Expectations of a 25 basis point rate reduction in March rose close to 50% in the swaps market up from 20% before the decision was announced on Thursday.
The Bank of England also cut its growth forecasts for the next two years and raised its unemployment outlook, predicting that a weakening labour market could help contain inflationary pressures.
The central bank expects inflation to return close to 2% target by April.
The ECB also left interest rates unchanged at 2% in line with expectations. There were a few surprises from the central bank as rates were expected to remain unchanged for a fifth straight meeting
The rate decision comes as inflation cooled more than expected to 1.7% in January, further from the 2% target, and as the euro traded significantly stronger than just a month ago. A stronger EUR/USD can add deflationary pressures.
The ECB considers that the economy remains resilient in a challenging global environment it also repeated expectations and expects inflation to stabilise around the 2% level over the medium term.
The markets continue to see a small chance of another ECB rate cut, with just a 25% probability of a 25-basis-point reduction this year.