The Pound Euro (GBP/EUR) exchange rate briefly struck a new two-month high this week, before swiftly falling from grace in the wake of a more dovish-than-expected policy statement from the Bank of England.
Pound tumbles as BoE’s Forward Guidance Disappoints
The Pound initially opened this week’s session on strong footing, rallying against the Euro and the majority of its other peers, amidst some hawkish expectations in the run up to the BoE’s latest interest rate decision.
This upside in Sterling was further supported by some optimistic comments from Boris Johnson, who suggested there is nothing in the data to signal that the 19 July will not go ahead.
However, shortly after the GBP/EUR exchange rate struck a new two-month high, the Pound was met by an aggressive selloff, triggered by the BoE’s latest policy statement.
GBP investors were disappointed that the BoE wasn’t more hawkish in its forward guidance, with Sterling tumbling as analysts cast doubts on the chances of the bank hiking interest rates in 2022.
Meanwhile the Euro struggled to hold its ground against a resurgent Pound at the start of this week, in spite of the single currency being supported by a drop in the US Dollar.
But the Euro was able to take full advantage of the slump in Sterling in the second half of the week, after the latest Eurozone PMIs and German business morale both beat expectations in June.
Eurozone CPI figures in the spotlight
Turning to next week’s session, the publication of the Eurozone’s consumer price index is likely to act as a key catalyst of movement in the Pound Euro exchange rate.
While another rise in Eurozone inflation could prove positive for the Euro, with the European Central Bank (ECB) expected to leave its ultra-accommodative monetary policy in place for some time, any upside in EUR exchange rates could prove limited.
Meanwhile, the focus for GBP investors is likely to be on the UK’s latest GDP figures, with Sterling potentially strengthening if growth in the first quarter is revised higher again.
Also influencing the Pound will be UK coronavirus statistics, as GBP investors remain wary that any surge in cases of the Delta variant could still threaten next month’s reopening.