Pound Euro Exchange Rate: Gbp/eur Nears Two-Week Highs As Boe Hints Of Rate Hikes express.co.uk

The pound has remained near a two-week high against the euro today, trading in the region of €1.138. The appreciation comes in the wake of Thursday’s Bank of England (BoE) meeting, where policymakers suggested that there could be more interest rate hikes in 2019.
Perhaps the biggest point of interest from yesterday’s meeting was Governor Mark Carney’s admission that interest rates could be raised if there was a no-deal Brexit.

Dr Carney said: “[Interest rates] might need to be tightened in the event of a no-deal, no transition Brexit.”

This suggestion, alongside forecasts for up to three 2019 interest rate increases in the event of a Brexit deal, helped boost GBP trader confidence and pushed the pound to its current level against the euro.

It is worth mentioning that not all policymakers have taken the “rate hike if no-deal” suggestion at face value with ING Economist James Smith saying: “In a ‘no-deal’ scenario, the BoE has suggested rates could go in either direction.
However, given the wide-scale disruption that would likely occur, we suspect policymakers would ‘look through’ any spike in prices caused by a weaker pound, and cut interest rates or increase quantitative easing fairly swiftly.”

Additionally, BoE policymakers warned that there might be an interest rate cut if the situation demanded it: “The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction.”

In other UK news, October’s UK construction PMI has revealed unexpected growth but this hasn’t been enough to cause a GBP/EUR exchange rate rally.

For euro traders, today’s main data release was measure of Eurozone-wide manufacturing sector activity.

The finalised manufacturing PMI for October has fallen from 53.2 points to 52.0, below the expected 52.1 point printing.

This indicates a greater-than-expected slowdown in the pace of activity and has made the euro a less appealing currency.

Summing up a bad month for the single currency bloc, IHS Markit Chief Business Economist Chris Williamson said: “Concerns about the Eurozone manufacturing sector intensified at the start of the fourth quarter.

“The headline PMI fell to its lowest since August 2016, signalling a further slowing in the rate of expansion.

“New orders fell into decline for the first time in almost four years as trade woes escalated.”

PMI data will remain in the spotlight on Monday, with the high-impact UK services reading due out in the morning.

Current forecasts are for a slight rise in the pace of sector activity, which could be all that’s needed to boost Sterling.