GBP EUR Cools Off from Interest Rate Hike Bets

GBP EUR Lower After ECB Monetary Policy Minutes

The GBP EUR exchange rate was lower by -0.39% on Thursday and was erasing much of the previous day’s gains. Soaring inflation in October had fuelled further bets that the BoE will hike rates in December. Some profit-taking has set in to the pound sterling with the 2020 highs only 60 pips away from yesterday’s high.

The GBP to EUR was trading at 1.1870 as traders get cold feet above 1.1900.

Bank of England governor says no 1970s-style inflation

The Bank of England’s Governor said there will be no return to ‘1970s-style’ inflation, because wage increases are being eaten up by the soaring cost of goods.

Some economists have warned of a “wage-price spiral” where higher salaries push up the price of goods and creating a feedback loop.

Speaking to the Treasury Select Committee, the Governor said: “I am very uneasy about the inflation situation. It is not, of course, where we want it to be, to have inflation above target.”

But he also went back to the idea of temporary inflation: “On their own, those ought to be temporary. All of the proximate reasons why they are happening look to be temporary.”

He also said that holding interest rates at 0.1pc at this month’s MPC meeting was “a very close call”.

“I came down in favour of thinking that given these two-sided risks of weaker activity and higher inflation, the labour market story really is the crucial part of it and we have not seen enough of that story post-furlough scheme,” he added.

This week has given Mr Bailey more of the story with stronger employment numbers and surging inflation. Analysts are now looking to the next BoE meeting in mid-December where the bank will surely increase rates from the current 0.1%.

Austria could move to a full lockdown, Germany to get drastic

The threat of coronavirus lockdowns is back in Europe after a recent surge and that should weigh on the euro.

Belgium has announced tougher restrictions in response to a rise in infections, including a return to home working four days a week and mandatory masks.

Austria recently introduced a lockdown for the unvaccinated but are now being told a full lockdown may happen. A return to lockdowns after massive vaccination campaigns could become a situation more serious than politicians are envisaging as they once again roll back on their promises of freedom.

“If no national lockdown is ordered tomorrow, there will definitely have to be a lockdown of several weeks in Upper Austria together with our neighbouring province Salzburg as of next week,” said Upper Austria governor Thomas Stelzer.

Germany is also facing tough restrictions with Chancellor Angela Merkel saying the situation was “dramatic” as the country reported over 65,000 new cases.

“We are currently heading toward a serious emergency,” said the agency’s warning that hospitals were running short of beds. “We are going to have a really terrible Christmas if we don’t take countermeasures now,” said the disease agency’s director.

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