- Pound (GBP) is rising for a second day
- The BoE warned over an inflation shock from the Iran war
- Euro (EUR) is lower after the ECB left rates unchanged
- The ECB lifted its inflation forecast and lowered growth
The Pound-Euro (GBP/EUR) exchange rate is rising for a second day. The pair rose 0.03% in the previous session, settling on Wednesday at €1.1577. The pair traded between €1.1557 and €1.1593. At 16:30 UTC on Thursday, GBP/EUR trades +0.13% at €1.1592.
The pound is rising following the Bank of England’s interest rate decision. The central bank left rates unchanged at 3.75% for a second consecutive meeting, in line with expectations.
However, the vote split of 9–0 was more hawkish than the 7–2 split that had been expected.
Furthermore, the central bank highlighted concerns over the inflationary impact of the war in the Middle East.
The BoE now expects inflation to rise to 3.0% in the second quarter and 3.1% in Q3, up from previous forecasts of around 2.1%.
Following the meeting, markets are now pricing in potentially two rate hikes from the BoE this year, including around a 50% probability of a 25 basis point hike in April, with a June hike fully priced in.
This marks a significant shift from expectations at the end of February, when markets were anticipating a 25 basis point rate cut before the conflict began.
The euro is also rising against the US dollar but is under pressure versus the pound following the ECB decision.
The European Central Bank, in line with expectations, left interest rates unchanged for a sixth consecutive meeting. However, policymakers noted that the Middle East conflict has increased uncertainty, raising upside risks to inflation and downside risks to growth.
The ECB revised its near-term inflation forecast higher to 2.6% (from 1.9%) for 2026 and to 2.0% (from 1.8%) for 2027. However, the central bank stressed uncertainty around the medium-term outlook, which is key for its policy decisions.
While the ECB adopted a slightly more hawkish tone than in previous meetings, it was less hawkish than the BoE. This is why the euro is weakening against the pound.
