The British pound is higher against the euro on Thursday afternoon after the Bank of England made the decision to keep UK interest rates steady, confounding earlier communications which hinted rates could be lowered.
GBP/EUR was higher by 59 pips (+0.50%) at 1.1876 with a daily price range of 1.178 to 1.188 as of 1pm GMT. The currency pair had dipped earlier on with the dollar gaining thanks to its haven appeal but turned significantly higher at 12pm GMT when the Bank of England’s decision was announced.
GBP/EUR – BoE decided to hold interest rates steady
In the end the Bank of England decided to hold interest rates steady at 0.75% by a 7-2 vote. The basis for the decision according to the minutes of the meeting were as follows: “Since the December meeting, international developments had been positive and the most recent UK data supported the forecast of a near-term recovery in growth.”
Although the decision to keep rates steady was a positive for the pound, the guidance for what comes next was a little less so. The minutes from the meeting went on to say, “The Committee would monitor closely the extent to which these early indications of an improved outlook were sustained and followed through to the hard data on domestic activity in coming months.”
Sterling has seen considerable volatility in the lead up to today’s decision with speculation rife that it could swing either way. Analysts had said the decision was “on a knife edge” with markets pricing roughly 50/50 odds of either a hold or a cut to UK interest rates.
Most of the time a central bank will make enough public comments before taking a decision that when it happens, the currency has already adjusted to the news. In this case, it wasn’t clear which way the decision would go, and the British pound moved quickly higher after rates were kept on hold rather than lowered.
The gains in the British pound were perhaps capped because the British central bank also cut its growth forecasts for the UK. The average quarterly growth is expected to have slid to 0.2% in 2019, down from 0.35% in 2018.
