The GBP EUR exchange rate was flat on Monday as traders paused to weigh up recent developments in the market. Comments from the Bank of England Governor and Chief Economist have added confusion to the interest rate picture.
The GBP to EUR is trading at 1.1915 and has the 2020 highs at 1.2000 in its sights.
Bank of England adds doubt to rate hike picture
The Bank of England Governor and Chief Economist have added some doubt to the potential for an interest rate hike in December.
Governor Bailey highlighted three crucial considerations for the BoE in making a decision, saying:
“A, activity in the economy is slowing. B, the proximate cause of many of these inflation issues is on the supply side, and monetary policy isn’t going to solve these directly… It doesn’t get more gas, more computer chips, more lorry drivers”
“And C, however the concern for us is what they classically call ‘second-round effects’, particularly in wage bargaining and the labour market … If the economy evolves in the way the forecasts and reports suggest, we’ll have to raise rates.”
By highlighting the labour market, and whether inflation will be driven by wage growth, the BoE governor cast some doubt on whether the bank was ready to raise rates in December.
The bank’s Chief Economist sounded a similar indecision at the weekend, telling an event in Bristol:
“The burden of proof is perhaps a little bit in the other direction…, so now I’m looking perhaps for reasons not to hike rates.”
Meanwhile, futures positioning has seen short positions building in the pound. Traders were their most bearish on sterling in 17-months, according to last week’s commitment of traders report.
Brexit talks still at a stalemate, Europe sees large protests
The Brexit-related talks over a potential Article 16 move by the UK are still not resolved and Brexit minister Lord Frost said ‘more urgency’ is needed in talks.
But, European Commission vice-president Maros Sefcovic called for an end to ‘political posturing’, saying:
“Sometimes I have the feeling that in our meetings I’m the only one who pushes for urgent solutions.”
The lack of progress has raised the prospect of the UK government activating Article 16 of the Northern Ireland protocol to suspend parts of the border agreement, potentially causing trade disruption with the EU.
Meanwhile, Europe was gripped with large protests over the weekend after the latest virus restrictions imposed. Austria moved to a full lockdown from Monday, while Germany was potentially set to follow.
The weekend’s activity saw protests in The Netherlands, Italy, Austria, Croatia, and France with a threat of further civil unrest if politicians continue to ignore the voice of its voters.
The GBP v EUR has resistance ahead at the 2020 highs of 1.2000 and that will be the target this week. Today will see the release of flash PMI data for November in Europe, Germany and the UK.
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