Pound to Euro: Will the BoE Cut Interest Rates This Week?

GBP EUR Steady at Highs but Inflation Still a Risk

The Bank of England are due to meet this week and all eyes will be on the decision whether to see if they will cut interest rates or not. The current interest rate in place is at just 0.15% which is the lowest in history. Rumours have been increasing in recent weeks that the central bank may be preparing to cut interest rates in an attempt to stimulate the British economy.

UK Gross Domestic Product (GDP) fell by over 20% during the pandemic and the government appear to want consumers to start spending again with shops and non-essential outlets reopening once again today.

Bank of England governor Andrew Bailey has already suggested that the central bank may change monetary policy so we could see a lot of movement for Sterling exchange rates on Thursday when the announcement is made.

Typically when a central bank cuts interest rates this can have a negative effect on the currency involved so if the central bank does cut rates then this could see the pound to euro rate fall, as well as against the other majors.

At the same time as the interest rate decision the Bank of England will also announce what it will be doing with Quantitative Easing (QE). QE currently stands at £645bn and there are also rumours that this amount will be increased to £725bn. If this happens this could also impact Sterling exchange rates. However, it could be taken another way in that the central bank are doing something positively to help the economy so make sure you pay close attention to this particular announcement.

UK Economic Data to Impact Pound Euro Exchange Rates this Week

On Tuesday we see the latest release of the UK’s unemployment rate as well as average earnings up the month of April. This is likely to see a big change from the previous figures. The previous announcement showed a rate of 3.9% but the prediction is for 4.5% so anything dramatically different could cause further movement for the Pound.

On Wednesday the UK announces its latest set of inflation data. The previous figures showed inflation levels at 1.6% with prediction for it to fall to 1.4%. This is clearly lower than where the central bank wants it to be but with the target of 2% in light of the recent pandemic then it could be argued that it is not too low compared to where the Bank of England wants it to be.

We end the week for UK economic data with the latest set of Retail Sales data. During April the figures fell by -18.1% which should come as no surprise as this was the first full month of lockdown in the UK. In effect high street shops were closed for business but with online sales increasing and companies adapting during this period then we could see a slight bounce back for the data and this could help to see Sterling exchange rates improved marginally if the figures come out better than expected.

Will the UK Extend the Brexit Talks this Month?

According to the Cabinet minster Michael Gove the ‘moment for an extension has now passed. Gove went on to say “I formally confirmed the UK will not extend the transition period & the moment for extension has now passed. On January 1, 2021, we will take back control and regain our political & economic independence.’

However, the UK technically has until the end of June before it formally announces whether or not it will ask for an extension so watch this space as we could see a lot of volatility for Sterling exchange rates as we come towards the end of this month.

According to a report from the Financial Times, it has been reported that Prime Minister Boris Johnson wants to have a deal done during the summer or the UK will look to walk away without a deal.

Therefore, if you’re in the process of making a currency transfer during this month pay close attention to the economic data this week as well as the Brexit developments.

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