Pound to euro exchange rate drops after significant rise
The pound to euro exchange rate rocketed to a nine-month high earlier this week. Ahead of the Bank of England’s latest Base Rate decision later today, it has continued to perform well.
The pound is currently trading at 1.1320 against the euro, according to Bloomberg at the time of writing.
Michael Brown, Senior Market Analyst at Caxton FX, said: “Sterling continues to trade above the key 1.13 support this morning, ahead of the first BoE decision of the year at noon.
“The pound’s fortunes, in the short-term at least, look to depend on the Bank’s messaging around the possibility of negative rates, and whether the market can determine the nuance between such a policy being technically possible, but not desirable.”
Despite the volatile times, the pound to euro exchange rate has performed well this week.
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Closing above €1.13, it hit a high not seen in nine months – the second time it’s hit this level.
“GBP/EUR hit a new nine-month high and closed above €1.13 for only the second time since May last year,” said George Vessey, currency strategist at Western Union Business Solutions, on Tuesday.
Today, the Bank of England will publish the latest quarterly Monetary Policy Report.
This report sets out the economic analysis and inflation projections and it is this which the Monetary Policy Committee uses in order to make its interest rate decisions.
The Committee made two successive cuts to the Bank Rate in March last year.
It was slashed from 0.75 to 0.5, before being cut to a historic low of 0.1 percent.
There has been concern there is potential for interest rates to turn negative.
While it’s not something the Bank of England has signalled as such, it has been highlighted that it’s “in the toolbox”.
In August 2020, Bank of England Governor Andrew Bailey was asked about the potential for negative interest rates.
“They are part of our toolbox,” he said.
“But at the moment we do not have a plan to use them.”
George Vessey, Currency Strategist at Western Union Business Solutions, commented: “The British Pound is weakening ahead of the Bank of England’s (BOE) ‘Super Thursday’ policy meeting at midday today.
“GBP/USD has slipped under $1.36 and is on track for a meaningful weekly loss, which could fuel a full-blown reversal if $1.35 gives way.
“GBP/EUR remains afloat the €1.13 handle thanks to the overly weak Euro.
“Market participants are expecting the BOE to keeping interest rates at record lows and its quantitative easing programme unchanged today, but all eyes will be on its review of the feasibility of negative interest rates and its updated economic projections.
“Although the UK is in a third national lockdown and economists have reduced growth estimates for 2021, ongoing BOE action has cleared the way for the Treasury to be the main source for further support.
“Affordable government borrowing is integral and takes the pressure off having to reduce its deficit any time soon.
“How might sterling be impacted though? Keeping sub-zero rates as a potential tool to support the economy during this pandemic could send sterling even lower but taking such a policy move off the table would likely send sterling higher.”
Although holidays are currently on-hold, some may well be interested to know what the exchange rate means for their travel money right now.
Post Office Travel is currently offering an online rate of €1.091 over £400, €1.1069 for over £500, or €1.1125 for over £1,000.
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