Pound to Euro: Hawkish BoE Rhetoric Boosts Sterling Exchange Rates

July 10, 2024 - Written by John Cameron

STORY LINK Pound to Euro: Hawkish BoE Rhetoric Boosts Sterling Exchange Rates

French politics and Bank of England (BoE) interest rate expectations have been key drivers for the Pound against the Euro during Wednesday.

Hawkish rhetoric from BoE Chief economist was the key element boosting the Pound and GBP/EUR hit 3-week highs around 1.1860 even though the Euro held its own in global markets.

According to Bank of England chief economist Pill, when-rather-than-if characterization of prospective rate cuts seems appropriate and that the challenge for the bank is get the balance right.

According to Pill; “At annual rates still not far from 6%, annual services price inflation and wage growth continue to point to an uncomfortable strength in those underlying inflation dynamics.”

Although warning over the threat of persistent inflation, he added; “But the latest data also remains consistent with the view that these inflationary pressures have now been contained, and may be starting to revert towards levels that are more consistent with the achievement of the inflation target.”

Pill also doubted that one or two further data pieces would not have a major impact on the assessment.

Overall, the comments triggered fresh doubts whether a majority would back an interest rate cut at the next policy meeting.

Following the data, markets considered that the chances of an August rate cut had dipped below 50%.

Pill’s comments also suggested that the BoE would be very cautious in cutting rates.

Despite Pill’s comments, traders will be looking forward to next week’s labour market and inflation data for further evidence on the inflation dynamics.

As far as the French political situation is concerned, there has been further feverish activity with new members of the National Assembly attempting to put together a government.

According to the left-wing New Popular Front (NFP) it is aiming to govern according to its tax and spend programme and it is aiming for a deal by the end of this week or early next week.

The NFP is, however, short of a majority in the Assembly.

Meanwhile Macron’s party are also aiming to persuade more moderate elements of the NFP to switch sides and join a centrist government. In this environment, Macron could be able to appoint a technocrat as Prime Minister.

There is a key risk of deadlock in the near term which will tend to limit scope for Euro buying.

ING commented; “It has become increasingly clear that coalition talks in France will prove a lengthy and complicated process.”

ING added; “Markets would probably choose the technocratic solutions over the others, but it may well take weeks to break the gridlock, and we remain concerned about the bond market getting unnerved by such immobility.”

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TAGS: Pound Euro Forecasts