GBP/EUR: Brexit Nerves Weigh On Pound
  • Pound (GBP) rallies after a more hawkish BoE
  • Rate hike expected in H1 2022
  • Euro (EUR) eases after weaker PMI data
  • German IFO economic sentiment data due

The Pound Euro (GBP/EUR) exchange rate is ticking mildly higher after strong gains in the previous session .The pair settled +0.24% higher on Thursday at €1.1683 after briefly spiking through €1.17. At 05:45 UTC, GBP/EUR trades +0.03% at €1.1688. The pair is set to end the week -0.2% lower.

After quiet trading all week the Pound jumped higher in the previous session. The Pound gained following a slightly more hawkish than expected Bank of England monetary policy meeting.

As expected, the BoE kept monetary policy unchanged. However, the BoE policy makers voted 7-2 to keep QE unchanged. This was a slightly more hawkish vote than last month when the central bank voted 8-1. This month David Ramsden switched vote joining Michael Saunders.

The central bank also said that inflation could temporarily exceed the 4% that the central bank had previously expected by the end of the year. CPI inflation is currently at 3.2%. Spiking gas costs have caused turmoil in the energy markets and could lift inflation higher.

All in all, the tone of the statement was more hawkish than expected and opens the doors to a sooner interest rate rise than initially forecast. The BoE signaled that it could even start raising interest rates before bon d purchases expire.

The Euro fell versus the Pound after PMI data for September disappointed. Business costs surged in the bloc, rising at the fastest pace in more than two decades in September. This is the latest evidence that supply chain disruptions are denting growth whilst inflationary pressures rise.

The Eurozone composite PMI which is considered a good gauge for business slid to a 4 month low in September of 56.1.

Looking ahead the economic calendar will remain in focus with the release of German IFO economic sentiment data. The data comes after the IFO cut Germany’s economic growth forecast for 2021c to 2.5%, down 0.8%. The IFO also raised the outlook for the coming year to 5.1%.