The GBPEUR exchange rate could produce another frustrating week for traders with the key data release making investors wait until Thursday for a possible spark in the currency rate. The Bank of England will meet for its latest interest rate and monetary policy decision and this could determine where the pair moves to next.
GBP to EUR spent the whole of last week in a tight range near the 1.15 level and the recent pound uptrend hangs in the balance.
Bank of England outlook
A recent survey of analysts by data provider Reuters, saw 24 of 25 agreeing that the bank will hold its key interest rate at 0.1%. The analysts were also largely in agreement that the bank would stay at the same interest rate into 2023.
The reopening of economies will bring inflation and it may not be as easy as expected to keep the rates near zero. “Tapering” talk – the winding down of stimulus – is being talked about for the US, Australia, and the UK. Canada already made moves to wind down their bond purchases and central banks know that this is coming, but previous efforts to wind down stimulus from the last financial crisis rattled the markets. The markets are even more drunk on stimulus this time around with stock markets continuing to power ahead.
Friday will then see the release of German GDP numbers for Q1, while the same will come for Italy and the Eurozone. German politicians voted in favour of a new “emergency brake” lockdown bill at the Federal level, which will override the current power of states. This comes after Chancellor Merkel suggested an Easter lockdown and had to make an embarrassing u-turn and apology. The process is now in place for a snap lockdown if cases hit a certain level and the country’s health minister had recently called for another such move.
Some expect the Bank of England to remain focused on a return to strong employment levels, but Scotiabank highlighted that moves may come sooner, saying:
“The BoE’s meeting a week from now comes into focus with economists mixed over whether the bank will tee up a reduction in its rate of asset purchases – with some even expecting such a move to be announced next week.”
Scottish elections and referendum talk
Scotland will vote on the 6th May in parliamentary elections on the same day as the BoE announcement and the talk of independence will likely return. Surprisingly, Nicola Sturgeon has tried to slow the pace towards independence recently, but this may be due to the threat of a power grab by Alex Salmond’s Alba party.
The former First Minister of Scotland recently setup his own party to go head-to-head with his former confidant in Sturgeon, but their relationship has apparently soured.
Salmond wants to immediately push for referendum talks with the UK government, while the First Minister distanced herself from “bulldozing” a way to independence.
The GBP v EUR has support at the 1.1280 level, which was key in 2020, but the price would have to get through the lows below 1.1500 to get nearer that level.