The British pound is higher against the euro on Wednesday afternoon as the markets continue to re-price the possibility that the Bank of England cuts interest rates at its meeting next week. Elsewhere, stock markets in the UK and Europe were higher with investors taking the coronavirus outbreak in China in their stride.
GBP/EUR was higher by 69 pips (+0.59%) at 1.1840 with a daily price range of 1.176 to 1.184 as of 1pm GMT, putting the currency pair into news highs for 2019.
A Fresh 2019 high for the pound versus the euro comes after a full 180-degree reversal in trader expectations for this months Bank of England meeting. We are now back to a state-of-play where a rate cut looks less likely thanks to the release of stellar UK labour market that showed the employment rate at its highest ever level. Quickly rewinding the clock, just a week ago following dovish comments from four central bankers, a rate cut seemed more likely than not.
Gains this week in the pound picked up steam following data published by the Confederation of British Industry (CBI) showing that the UK manufacturing sector has started the year strongly. The business organisation’s ‘Headline order book’ balance rose to the highest since August. The real eye-catcher was the ‘Quarterly Business Situation index’ that gauges optimism in the industrial sector printed its best reading since April 2014.
If indeed interest rates stay the same for the time being, traders are starting to think about possible hike in interest rates further afield. With business optimism improving since the general election ended the deadlock in parliament and the country got some certainty over its exit from the European Union, activity could pickup to the extent that higher interest rates are the more appropriate course of action.
The price moves have really been all about the pound in the last week or so with very little attention being paid to the euro-side of things. That emphasis reflects the relative chances of a change in policy at the January meetings of Bank of England versus the European Central Bank. The ECB rate decision happens tomorrow (January 23) at 12.45pm GMT.
