Currency News from Currencies Direct - Costa Del Sol

  • Pound euro (GBP/EUR) struggles as May rate hike hopes are quashed

    It can save you time and money to stay on top of the latest currency news, especially with the Bank of England’s (BoE) latest rate decision looming …

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    Sterling has posted a mixed performance against the euro over the past two weeks, rising initially on a dovish European Central Bank (ECB) rate decision but facing pressure late on as markets reacted to a poor Q1 GDP print and a disappointing private sector performance in April.

    Over the past two weeks, GBP/EUR slipped from highs of €1.1511 to €1.1388, whilst EUR/GBP saw highs of £0.8857 falling to £0.8804.

    Meanwhile, GBP/USD has fallen from highs of $1.3995 to $1.3596 and EUR/USD has collapsed from $1.2242 to $1.1977

    What’s been happening?

    The predominant cause of the pound’s ongoing struggles has been the surprising U-turn in the Bank of England’s monetary policy expectations, with weak Q1 economic growth and a raft of disappointing UK PMI results now expected to push the Monetary Policy Committee (MPC) away from raising interest rates on Thursday.

    The euro has also suffered from a dovish central bank, however, with weakening inflation and low Q1 growth expected to prevent a rate hike from occurring for the foreseeable future, and perhaps even extend the bank’s bond-buying programme beyond September.

    Across the pond, on the other hand, the US dollar has seen a broad rally, supported by unemployment dropping to 3.9% and a marked rise in personal consumption expenditure (the US Fed’s preferred measure of inflation).

    This has effectively positioned the US Fed as the more hawkish option in the eyes of the markets, thus making the dollar the more attractive investment.

    What do you need to look out for?

    This week’s BoE’s rate decision on ‘Super Thursday’ will likely dominate headlines, with a dovish announcement liable to kick GBP/EUR into the doldrums.

    There is, however, a chance that the central bank will provide a balanced statement; hesitant to be too dovish for the sake of their own credibility given that they had repeatedly pointed to a rate hike occurring in May.

    For the euro and the US dollar, investors will be keeping a close eye on the US consumer price inflation results and the ECB’s economic bulletin – both also due on Thursday.

    Investors are currently quite bullish on the ‘Greenback’ due to the aforementioned hawkishness of their central bank, and if the US data continues to remain positive then we could see the US dollar continue to siphon demand away from the euro and, to a lesser extent, the pound.

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