Sterling vs Euro Weakens Ahead of Bank of England Decision

GBP EUR Flat Despite Government Debt Pressure

The GBP to EUR interbank exchange rate has weakened in the last day, in part because the financial markets remain unsure if the Bank of England (BoE) will cut interest rates below their current 0.75%, when the central bank convenes this Thursday at 12.00 GMT.

It’s unclear if the BoE will reduce UK interest rates from 0.75%, back to their all-time low of 0.5%, because the UK’s economic performance recently has been mixed.

On the bright side, business confidence surveys since last month’s decisive general election result have revealed a clear increase in sentiment, as CEOs welcome the prospect of UK political stability and predictability.

In addition, last Friday’s “flash” PMIs (Purchasing Managers’ Indices) by watchdog IHS Markit for the UK’s services and manufacturing sectors revealed an increase in business activity.

All this suggests that the UK economy might be accelerating in early 2020, which in turn could incentivise the BoE to maintain UK interest rates this Thursday.

UK GDP Falls in November

Yet on the other hand, UK inflation fell 0.2% in December to 1.3%, well below the BoE’s official 2.0% target. This suggests that the UK economy remains too sluggish to generate significantly higher price pressures.

UK GDP (Gross Domestic Product) unexpectedly fell by 0.3% in November. In addition, what with the UK/EU trade talks set to begin in the coming weeks, there’s the prospect of further political uncertainty this year.

All these factors could convince the UK’s central bank to cut borrowing costs later this week, which could affect sterling.

Turning to the Eurozone, we’ll learn the bloc’s Q4 GDP for October to December, as well as last month’s inflation figures, this Friday at 10.00 GMT. These too have the potential to influence the sterling vs euro interbank exchange rate.

If you have an upcoming currency transfer and would like to plan around Brexit or the BoE interest rate decision, feel free to contact me directly, Tom Holian, Using the form below. I look forward to hearing from you.