Pound Euro exchange rate collapses following BoE’s dovish rate hike

The Pound Euro exchange rate fell sharply this week in the wake of the Bank of England’s (BoE) latest interest rate decision. 

Pound sinks as BoE strikes cautious tone in regards to future interest rate hikes 

The Pound suffered a sharp selloff this week as GBP investors were left disappointed by the BoE’s latest policy announcement. 

While the BoE delivered its third consecutive rate hike this month – raising interest rates from 0.5% to a pre-pandemic level of 0.75% – GBP investors were left disappointed by the bank’s dovish forward guidance. 

The BoE suggested that while ‘further modest tightening’ might be necessary, it signalled its apparent reluctance to hike interest rates again for the time being and highlighted its uncertainty over the UK’s economic outlook in light of the war in Ukraine. 

Meanwhile, demand for the Euro was underpinned this week by Ukraine-Russia peace talk optimism, with officials from both country’s suggesting ‘significant progress’ has been made. 

However, the single currency’s gains were capped somewhat by comments from European Central Bank (ECB) President Christine Lagarde in which she again rebuffed speculation the bank could hike interest rates this year. 

Eurozone and UK PMIs in the Spotlight 

Turning to next week’s session the primary focus looks to be on the latest PMI releases from both the Eurozone and UK. March’s preliminary releases will offer the first look at how both economies are faring following the outbreak of war in Ukraine. 

Given the particular vulnerability of Europe’s economy to the conflict, the Eurozone release will be of particular focus, with any notable slowdown in economic activity likely to undermine the euro. 

While not as sensitive as the Eurozone to the events in Eastern Europe, the UK private sector could have also seen a slowdown in growth this month, potentially exerting some pressure on the Pound. 

Also influencing GBP exchange rates will be the UK’s consumer price index, which is expected to report domestic inflation continued to accelerate last month. But given the BoE’s current reluctance to hike interest rates could the bump in inflation prove to be a liability for Sterling? 

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