GBPEUR Lower as Nerves Return Above 1.1800

GBP EUR Lower After ECB Monetary Policy Minutes

The GBPEUR exchange rate was 0.25% lower on Monday as traders got nervous above the 1.1800 level once more. The pair has traded above there on two occasions this year but has failed to hold on to the advance. A rise in coronavirus cases last week may have been the driver again.

The GBP to EUR trades at 1.1819 after seeing new yearly highs on Friday near 1.1850.

Bailey reaffirms Bank of England rate hike plans

Sterling was still trading at a 20-month high versus the euro on Monday with Bank of England Governor Andrew Bailey signaling again that the central bank is ready to raise interest rates amid inflation risks.

Sterling is higher by 5.5% versus the euro this year and has seen fresh buying lately as analysts react to higher inflation in the UK. The potential for an interest rate hike in December is helping the pound to shrug off other issues such as a labour shortage and energy crisis.

During an online panel discussion on Sunday, BoE governor Andrew Bailey said the BoE will “have to act” in its monetary policy meetings due to the risk of medium-term inflation.

Deutsche Bank analyst Jim Reid also told clients in an investment note that the central bank appeared to be using the weekends “to prime the markets for imminent rate hikes”.

One issue for the pound sterling this morning was a rise in virus cases last week to three-month highs and that has taken the steam out of the sterling price action recently.

Rabobank sees headwinds for UK growth picture

Rabobank analysts have diverged from the idea that the BoE will act imminently in the face of recent inflation, and they also saw headwinds to the UK growth picture.

“Fears around the medium-term outlook for the UK economy could hinder the prospects for the pound next year and beyond,” they said.

“Tensions with French fishermen and disagreements about the Northern Ireland protocol have brought warnings of a trade war between the UK and the EU. Neither had had a significant impact on the pound to date. That said, this is a risk that the differences between the UK and the EU won’t be resolved easily and, on the margin, this news-flow provides an additional disincentive to GBP investors.”

 

“We are not expecting the BoE to raise rates in the coming months and see scope for GBP to edge lower on disappointment,” the bank added.

“We are forecasting EUR/GBP at 0.85 on a three-month view. We expect USD strength to push cable back to the 1.36 area on a three-month view.”

The pound sterling has been hit on Monday by a rise in coronavirus cases to a three-month high. Despite this the Downing Street spokesperson has said that restrictions are not in the immediate plans.

“There is absolutely no plan to introduce plan B currently. We retain that capability if required if we believe the NHS is coming under unsustainable pressure.”