On Thursday, the Pound to Euro exchange rate (GBP/EUR) rose as GBP investors became more optimistic about future interest rate increases from the Bank of England (BoE).
Following evidence by Bank of England (BoE) policymakers to the Treasury Committee, the Pound (GBP) gained strength on Thursday.
BoE Governor Andrew Bailey, Senior Economist Huw Pill, and external member Silvana Tenreyro all testified at this hearing. Bailey reaffirmed the bank’s commitment to bringing inflation down to the BoE’s goal rate of 2%.
Governor Baily of the BoE responded to a query by saying: “During the hearing, Governor Bailey stated: “Our objective is to get inflation back down to target.” Naturally, the public will anticipate such from us.
Because the Central Bank would likely raise interest rates in the future to combat inflation, investors in GBP appear to have welcomed this prospect.
Additionally, the market remained consistently positive on Thursday throughout the whole session, giving Sterling an additional boost. The currency has become more risk-sensitive, so upbeat market sentiments might give the pound a boost.
The Euro (EUR) saw little trading on Thursday despite advances versus other currencies because German inflation data came in below forecasts.
The figures revealed that headline inflation reached 8.7%, which was below expectations for harmonised inflation.
Harmonized inflation was 9.2%, far less than the predicted 10%. Rate rise expectations from EUR investors may have been dampened as a result. The largest economy in the Eurozone appears to be seeing a steep decline in inflation, which might cause the European Central Bank (ECB) to pause its current tightening cycle.
Though it’s possible that the ECB’s continued hawkishness has protected the euro from additional declines.
The negative correlation of the common currency may have further offered assistance. The US Dollar had a bad trading day on Thursday, which may have helped the Euro.
The newest batch of GDP figures for the UK will be released on Friday, which will have an impact on the Pound (GBP). Forecasts indicate that the UK economy slowed during the fourth quarter, which might strengthen the GBP by indicating that the country may have avoided going into a recession.
The UK economy is expected to see a severe slowdown on both an annual and monthly basis, so any benefits from avoiding a recession may be limited.
This might be a double-edged sword because with the increased backing he has sought, there might be widespread confidence that the conflict would soon come to an end. However, the possibility of additional escalation would make EUR investors nervous, which would cause the Euro to decline.
Because the Pound is more susceptible to risk than the Euro, a persistently positive market climate might push Sterling higher. However, the safer single currency may strengthen if things turn sour.