GBP/EUR down as central bank action continue to drive rates

By Matthew Boyle

In the early hours of the morning GBP>EUR rates sunk to the lowest point they have been this year. Claims of Russian de-escalation in Ukraine as Peace talks in Turkey continue have eased pressure on the EUR allowing the single currency to regain its feet.

Only 2 weeks ago rates we were testing a multi-year high just hours prior to the Bank of England hiking rates with a heavy programme of further hikes priced in. Today we see rates testing 3-month lows after seeing the MPC vote for hikes shift down and following BoE Gov Bailey suggested yesterday in regard to policy guidance that due to uncertainty further tightening  “may” be appropriate rather than “is likely”

Since the shift in the MPC vote we have lost around 5 cents in the rate,  3 of these alone since Baileys comments on Monday afternoon. This is stark contract to where we were a couple of weeks ago – Highlighting not only how central bank policy is currently the driving force in the market, but also how sensitive the GBP/EUR pair is to downside risk.

It seems perhaps that the balance and market sentiment has shifted away from the over backed and overbought pound and could be tipping towards the Euro.

With the next BoE rate decision weeks away and now Bailey seeming to suggest a more Hawkish cautious approach.

The same day EUR inflation is released, and with the EUR relative unbacked in terms if hikes an increase here aided by easing pressure from the Ukraine conflict cold see the Single currency gain significant ground in the short term.

Of course, things can always go both ways, but it isn’t out of the question we could see rates drop a further 2 cents in the next 2 weeks. And should the BoE/ EUR inflation data day go against GBP an even further drop after that.

Still in reach of 6-year highs and with mounting fear and likelihood rates will only get worse, speak to your Currency Consultant today for some friendly and professional guidance on how we can assist you to reduce the risk,