Pound Sterling Forecast: Will the Bank of England Cut Interest Rates and What Could Impact Pound vs Euro Exchange Rates?

GBPEUR Cautious Ahead of BoE, Scottish Election

The pound vs euro exchange rate has remained in a fairly tight range during the course of last week. Now at the end of the first full week of the year it is likely that the markets will once again focus on what is happening in the economy.

What could impact Pound Sterling Exchange Rates?

We begin next week with the release of a number of different data sets due out on Monday morning. Monday brings with it the latest Industrial and Manufacturing Production data as well as the latest NIESR GDP estimate for the last three months. The NIESR data is not the official release for UK GDP but it is usually fairly accurate and can impact GBP/EUR exchange rates.

On Wednesday, UK inflation data is due to be published for December and this could cause a lot of movement for the pound vs the euro. The reason is that if inflation is low there is an argument for keeping interest rates low.

However, if inflation rises higher than expected then this could provide the Bank of England some support in either keeping monetary policy on hold or potentially even consider raising rates again in the future. However, whilst the uncertainty of Brexit looms then the Bank of England may have its hands tied.

Potential BoE Interest Rate Cut Causes Volatility for GBP Rates

One of the MPC members Silvana Tenreyro has already hinted that she may vote for a rate cut ‘in the near term’ if the economy fails to improve. Bank of England governor Mark Carney has also hinted that interest rates may be cut.

Recent forecasts for GDP in the last quarter of 2019 have suggested a slow down. Carney has claimed that ‘if evidence builds that the weakness in activity could persist, risk-management considerations would favour a relatively prompt response.’ Therefore, next week’s inflation data as well as GDP could influence the Bank of England to think about their options.

If you would like to learn more about what may affect the GBP/EUR or have an upcoming currency transfer, please contact me, Tom Holian, using the form below.