Pound / Euro Exchange Rate Tumbles - Exchange Rates UK

The Pound Euro (GBP/EUR) exchange rate nosedived on Wednesday. The currency pair fell after the Bank of England (BoE) raised interest rates by 50bps and forecast a fourth quarter recession. The European Central Bank's (ECB) hawkish forward guidance also weighed on GBP/EUR.

At time of writing the GBP/EUR exchange rate was at around €1.1496, which was down roughly 1.2% from that morning's opening figures.

Pound (GBP) Exchange Rates Slip as BoE Policymakers Divided after 50bps Rate Hike

The Pound (GBP) slipped on Thursday following the Bank of England's interest rate decision. The central bank raised interest rates by 50bps as forecast.

The central bank's decision had been largely priced in by markets, meaning that its impact on Serling was minimal. The vote split in the BoE's Monetary Policy Committee (MPC) did weigh on the currency, however. Two members of the MPC voted in favour of no change in policy.

The BoE's forecasts also weighed on the Pound. The central bank predicted that the UK's economy would shrink by 0.1% in the fourth quarter of 2022. BoE Governor Andrew Bailey also signalled that the central bank was seeing the first signs of easing inflation.

GBP saw a drastic slump limited by confirmation of further rate hikes from the BoE.

In a statement released alongside the decision, the BoE said:

'The majority of the Committee judges that, should the economy evolve broadly in line with the November Monetary Policy Report projections, further increases in Bank Rate may be required for a sustainable return of inflation to target.'

Further losses for the Pound were also driven by widespread industrial action on Thursday. Nurses in three counties staged their first strike in the union's 106-year history.

Euro (EUR) Exchange Rates Boosted by Hawkish ECB Forward Guidance

The Euro (EUR) climbed today after the ECB's interest rate decision. Whilst the 50bps rate hike was in line with forecasts, the move from the central bank bolstered the single currency. A cautious market mood and weaker US Dollar also bolstered the Euro.

The 50bps hike came in the face of soaring inflation across the Eurozone. The hike came alongside hawkish forward guidance from ECB President Christine Lagarde as she signalled that interest rates will have to rise 'significantly and at a steady pace'.

On the other hand, Carsten Brzeski at ING had concerns over the ECB's path:

'Needless to say that with the still relatively optimistic growth outlook, the risk increases that the ECB pushes the eurozone economy further into recession with every new rate hike.'

The fear that the ECB's actions could push the trading bloc into a recession capped EUR's gains on Thursday.

GBP/EUR Exchange Rate Forecast: Will UK Private Sectors Continue to Struggle amid Soaring Prices?

Looking to the rest of the week for the Pound, a range of private sector data could dent confidence in the currency on Friday. Retail sales figures for November are forecast to have cooled amid reduced household spending. If the data prints as expected, then it will likely add to the sector's poor outlook.

The latest PMI figures for the UK's private sectors could also keep pressure on Sterling. The data is forecast to confirm another month of contractions across all sectors as businesses grapple with high costs and falling demand.

For the Euro, PMI data for the Germany and the Eurozone could prompt losses in the single currency if they print as forecast on Friday. The figures are expected to confirm a contraction across all private sectors in December.

The final reading of November's inflation for the Eurozone could also pull EUR lower on Friday. Inflation in the trading bloc is forecast to have eased last month.

Finally for EUR, Friday's trade data could see further losses in the Euro if it prints as expected. The Eurozone's trade deficit is forecast to have widened to €-41.2bn in October.