BoE Interest Rate Decision Dents Pound Euro Exchange Rate Outlook

December 20, 2024 - Written by Ben Hughes

STORY LINK BoE Interest Rate Decision Dents Pound Euro Exchange Rate Outlook

The Pound Euro exchange rate (GBP/EUR) edged lower on Thursday following the Bank of England’s (BoE) December interest rate decision.

On Thursday, the Pound (GBP) lost ground against most of its major trading partners following the Bank of England's latest interest rate announcement.

As expected, the central bank kept interest rates unchanged at 4.75%.

However, the decision was not as unanimous as anticipated, with three out of nine Monetary Policy Committee members voting for a rate cut to 4.5%.

This unexpected dovish split in the committee led to a significant decline in the Pound against nearly all of its peers, despite the widely anticipated rate hold.

Daniela Sabin Hathorn, Senior Market Analyst at Capital.com commented: ‘The initial reaction in the pound has been bearish, and this is likely due to the vote split being slightly more dovish than expected. Forecasts had predicted an 8-1 or 7-2 split, suggesting only one or two members would vote for a cut in December. The actual split of 6-3 means there have been three dissenters (Dhingra, Ramsden, and Taylor) which suggests the Monetary Policy Committee (MPC) members may be more nervous about the state of the economy than originally thought.’

On Thursday, the Euro (EUR) maintained its stability against most of its counterparts following the release of Germany’s latest GfK consumer confidence index.

January’s sentiment indicator came in higher than expected, increasing from -23.1 to -21.3, surpassing the modest forecast of -22.5.

While this positive surprise offered the common currency some marginal support, the Euro's gains were fairly limited due to the index remaining firmly in negative territory.

As we look toward Friday, the key factor influencing the Pound Euro exchange rate will be the release of the UK’s latest retail sales index.

November’s retail sales are expected to rebound from a previous decline of -0.7% to a growth of 0.5%, which could give the Pound a strong finish to the week.

On the Euro side, Germany’s Producer Price Index (PPI) data for November is also anticipated to provide a boost.

The PPI is forecast to improve from -1.1% to -0.3%, potentially strengthening the Euro in the wake of the release.

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TAGS: Pound Euro Forecasts