- Pound (GBP) is rising after 2 days of declines
- BoE left interest rates unchanged, but the vote was more dovish
- Euro (EUR) falls after recent gains
- BoE – ECB policies diverge further
The Pound-Euro (GBP/EUR) exchange rate is rising after two days of losses. The pair fell -0.07% in the previous session, settling on Wednesday at €1.1688. It traded between €1.1675 and €1.1709. At 17:30, GBP/EUR trades 0.21% at €1.11716.
The pound is rising against the euro after the Bank of England’s interest rate decision, which left rates unchanged at 4.25% in line with expectations. The vote split was more direct than expected, with six voting to leave rates on hold and three voting to cut rates by 25 basis points.
The decision comes as inflation in the UK remains above the central bank’s 2% target at 3.4%, but as underlying growth weakens and the UK labour market cools.
However, policymakers still see two sided risks to inflation, no doubt a nod to the sharp swings in oil markets after a flare-up of the Israel-Iran conflict.
The market is pricing at an 80% probability that the BoE will cut interest rates in August, and the pricing in two 25 basis point rate cuts before the end of the year.
The BoE noted that trade negotiations had progressed, although the situation remains highly uncertain. Potential changes pose risks to global trade.
The euro is trading lower against the pound as the divergence between the Bank of England and the European Central Bank remains a key driver for the pairs direction. Well the BOE has chosen to leave rates unchanged the ECB cut rates by 25 basis points earlier in June lowering the deposit rate to 2% amid disinflation across the region.
With inflation in the eurozone below the ECB’s target 2% level the markets expect the ECB to cut interest rates once more before the end of the year. ECB policymaker Nagel highlighted the need for policy flexibility given the uncertainty surrounding the outlook.
