The GBP to EUR exchange rate shrugged off a very quiet week with prices stuck at the 1.15 level with a three-day rally this week. That rally hit a brick wall on Thursday after the Bank of England’s latest interest rate and monetary policy meeting. The pair was awaiting the result of the Scottish elections as the SNP party could see a majority and use that to talk of independence once more.
The GBP to EUR was trading around the 1.1520 level on Friday and the euro will try to push through that support level again.
Bank of England cuts QE levels
The highlight for the week in the sterling to euro rate was the latest interest rate and policy announcement from the BoE.
The bank kept its interest rate at the ultra-low level of 0.10% and also ramped up its growth expectations for the UK economy to 7.2% from its previous 5% forecast. The real headline for the event was a cut in the bank’s QE bond buying programme by $1bn per week to $3.4bn. The bank was quick to stress that this was still in line with its previous yearly target and that the move didn’t reflect a change in stance with monetary policy.
Central banks are trying to tackle rising growth and bubbling inflation as economies reopen and want traders to trust their trajectory for rate rises in 2023-24. The Bank of England used the word “transitory” which has been uttered by the Federal Reserve and the ECB over the last two weeks in a sign that this is a co-ordinated policy stance amongst the largest central banks who are trapped with rates at 0% and governments and economies who can’t handle rate hikes. That is why they fear the recent increase in inflation that has appeared in PMI data and consumer prices. Sterling sold off as many traders were maybe hopeful for a more bullish BoE statement on tapering.
France and UK clash over fishing
Post-Brexit tensions were back this week after France ramped up the fishing row with the country’s trawlers turning their attention from Jersey to the UK.
French fishermen have now threatened to block British trade into the EU as the tensions see a dramatic escalation. The French fishermen are threatening to blockade Calais and it represents another souring of the Brexit mood and a complete failure of the Brexit deal, which was only signed at the turn of the year.
The European Union spent two-three years pleading with the UK to Remain in their project with the promise that it is one big happy family, but event this year with vaccine blockades and the fishing blockades have shown what happens when the gloves are off.
The GBP v EUR exchange rate has been weak in its attempts to get above the 1.16 level in the last two weeks and sterling may see further selling next week with the key support level coming in at 1.1280.