Pound to Euro End-of-Week Forecast: GBP/EUR Nosedives following BoE Remarks

October 4, 2024 - Written by John Cameron

STORY LINK Pound to Euro End-of-Week Forecast: GBP/EUR Nosedives following BoE Remarks

The Pound Euro exchange rate plunged on Thursday as the currency pairing was severely undermined by the latest commentary from Bank of England Governor Andrew Bailey.

At the time of writing, the GBP/EUR was trading at around €1.1887, down roughly 1% from Thursday’s opening levels.

The Pound (GBP) tumbled against the majority of its peers on Thursday, dropping over 1% against both the Euro (EUR) and the US Dollar (USD), following remarks from Bank of England (BoE) Governor Andrew Bailey.

Bailey indicated that the BoE might need to adopt a more ‘aggressive’ stance on future interest rate cuts in the UK, hobbling Sterling in the process.

Previously, the BoE had taken a more cautious approach compared to its US and European counterparts, but in light of Bailey’s comments, money markets subsequently priced in an 88% chance of a rate cut at the bank’s upcoming meeting next month.

This put significant pressure on GBP exchange rates which were further exacerbated by a prevailing risk-off sentiment in markets.

The Euro gained ground against most of its counterparts on Thursday, buoyed by the release of some better-than-expected PMI data.

The latest services PMI index showed that the Eurozone's services sector remained in expansion territory this month, with the index slipping only slightly from 52.9 to 51.4, beating expectations of a steeper decline to 50.5.

Coupled with a prevailing risk-off market sentiment, this provided the safe-haven Euro with some moderate support during Thursday's European trading session, which saw it firm against its peers.

Looking forward, the main driver of the Pound Euro exchange rate on Friday is expected to be speeches from both the Bank of England and the European Central Bank (ECB), given the absence of any other significant economic data.

For the Pound, the lack of UK data releases may make GBP exchange rates sensitive to comments from Bank of England official Huw Pill in his upcoming speech. If Pill echoes Governor Bailey's remarks from Thursday, Sterling may continue to face
challenges.

Meanwhile, the Euro could also be impacted by a speech from ECB official Luis de Guindos. Should he reinforce the ECB's recent dovish stance, the single currency may come under renewed pressure.

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TAGS: Pound Euro Forecasts