Uncertainty in the BoE Skews Pound Sterling

GBP EUR Drops After Bank of England Recession Warnings 

As we head into the mid-week, the pound sterling has retreated against a key level versus the euro, as bulls fight to keep a multi-month uptrend alive. Meanwhile, markets are questioning the sincerity of the Bank of England’s recent hinting towards an interest rate cut that may be called upon as early as January. The uncertainty in the pound has been positive news for those in the euro trading area as the troubles have allowed the euro to creep up in the EUR/GBP exchange rate.

Recent comments from members of the Bank of England, including BoE governor Mark Carney, have led to a recent selling in the Pound in recent days. The comments were of a dovish nature and hinted towards an interest rate cut on the horizon for the UK economy. Bets for the cut to occur have shot up from 5% to 50% this week. With three members of the Monetary Policy Committee announcing they will vote in favour of a rate cut should economic activity not show signs of growth; the UK holds it breath as it waits for further economic releases this month. The UK is set for the PMI data release on January 24, 27 and 28, investors will be hoping that the figures beat market expectations to get the Pound back on track and beat down any rising bets of a rate cut. Any signs of growth could see the GBP edge back over the Euro and reset itself to around the 1.20 level in the GBP/EUR rate.

The uncertainty surrounding the BoE and their future for the cash rate has drawn attention away from the politics of Brexit, which for the first time in months is not the main topic of conversation. Currencies tend to fare badly when expectations for a rate cut grow and this appears to be the case for the Pound in 2020 also.

Short-term favours the Euro but GBP looks supported on the charts

current events have meant that the GBP has lost out on the markets, which has been a plus for the Euro when trading against the Pound. However, a technical support line on the charts have solidified a positive medium-term uptrend in favour of the GBP which looks to keep the GBP/EUR exchange supported. Since August, the Pound has been in an uptrend against the Euro, and whilst the Pound has retraced its own rally from December’s highs of 1.20, the uptrend appears to remain supported from a technical perspective.

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.