The pound euro exchange rate fell off a cliff this week, with the pairing plummeting over 1% in response to comments from Bank of England (BoE) Governor Andrew Bailey.
Pound nosedives on BoE Bailey comments
The pound euro exchange rate opened this week’s session on strong footing, with the pairing soaring to a fresh 29-month high.
This followed a weakening of EUR sentiment in the wake of softer-than-expected German and Eurozone inflation figures, which stoked bets for another European Central Bank (ECB) interest rate cut later this month.
GBP/EUR drifted slightly lower through the middle of the week as rising tensions in the Middle East weakened risk appetite and saw investors favour the euro over the pound.
This then gave way to a dramatic plunge in Sterling as we entered the second half of the week, in response to remarks by BoE Governor Andrew Bailey.
In an interview with the Guardian, Bailey suggested the bank may become a ‘bit more aggressive’ in cutting interest rates, assuming inflation remains under control.
The pound was then able to claw back a portion of its losses at the end of the week, following subsequent comments from BoE Chief Economist Huw Pill in which he warned against cutting rates ‘too far or too fast’.
Dovish ECB minutes to pull the euro lower?
Turning to next week, the publication of the minutes from the ECB’s September policy meeting may act as a key catalyst of movement for the pound euro exchange rate.
With questions still lingering on whether the ECB will deliver another rate cut in October, EUR investors will be eager to see how much appetite there may be amongst policymakers for further policy easing.
Expect to see the euro slide if the minutes hint that an October rate cut is likely.
Meanwhile, the focus for GBP investors will be the UK’s latest GDP figures. August’s monthly growth figures could drag on the pound at the end of the week if they show that the UK economy continued to stagnate.
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