Home » Pound Euro exchange rate touches four-month low following BoE and ECB rate decisions

Pound Euro exchange rate touches four-month low following BoE and ECB rate decisions

The Pound Euro exchange rate trended broadly lower over the past week, even touching a new four-month low in the wake of the Bank of England’s (BoE) and European Central Bank’s (ECB) latest interest rate decisions. 

Pound undermined by dovish BoE 

The Pound Euro exchange rate got off to a weak start this week. Sterling sentiment was initially pressured by a warning from the International Monetary Fund (IMF) that the UK would be the only major economy to shrink in 2023. 

Meanwhile the Euro was able to find support on the back of the Eurozone’s latest GDP figures, after the release showed the bloc’s economy unexpectedly expanding in the last quarter of 2022. 

The Pound continued to decline against the euro through the middle of the week ahead of the BoE and ECB’s latest interest rate decisions on the expectation the ECB would prove more hawkish than its UK counterpart, despite a larger-than-expected drop in Eurozone inflation. 

The GBP/EUR exchange rate then plunged to a four-month low immediately following the BoE’s interest rate decision on Thursday. While the bank raised rates by 50bps its dovish signals stoked speculation the BoE is nearing the end of its hiking cycle. 

But the pairing was quick to rebound from its worst levels as the ECB concluded its own policy meeting. In hiking rates by 50bps the bank signalled it would pursue another increase of equal size in March. 

However, in her following speech ECB President Christine Lagarde said that risks to inflation have become more balanced and that economic activity in the Eurozone is slowing, undermining expectations for more hikes later in the year and weakening the Euro. 

Will a robust UK GDP release help to buoy the Pound? 

Turning to next week’s session the spotlight is likely to be on the UK’s latest GDP figures. The fourth quarter GDP release will confirm whether or not the UK slipped into a recession in 2022. 

If the UK avoids a contraction of growth in the last quarter, which recent data suggests it might, then the Pound is likely to strengthen. 

Conversely a decline at the end of 2022 will plunge the UK into a recession and drag Sterling lower. 

Meanwhile the focus for EUR investors at the start of the week will be Germany’s latest factory orders and industrial production releases. Any signs that activity in Germany’s main engine of economic growth is improving is likely to bolster the Euro. 

On the other hand, the single currency will remain sensitive to developments in Ukraine. Any additional signs that Russia is preparing a massive new ground offensive could result in the Euro giving ground. 

If you’ve got a GBP/EUR currency transfer to arrange, the team at TorFX are on hand to help. Get started now to access bank-beating exchange rates and fast, free transfers.  

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