The Pound to Euro exchange rate could advance this week if the minutes from the Bank of England’s latest policy meeting show discord among policymakers.
Bank of England Interest Rate Outlook
On two previous occasions, the Monetary Policy Committee have voted 2:7 in favour of an immediate rate hike, with Martin Weale and Ian McCafferty pushing for a 0.25% increase in the benchmark rate.
However, given recent events, some economists have argued that the BoE is less likely to be split on the subject this time out.
While UK fundamentals have been falling short, the global economic outlook has also been called into question. The International Monetary Fund has stressed that if factors like risk taking and the slowdown in regions including the Eurozone and China aren’t addressed, another global economic crisis could be on the cards.
In the view of the IMF; ‘The pace of global recovery has disappointed in recent years. With weaker-than-expected global growth for the first half of 2014 and increased downside risks, the projected pickup in growth may again fail to materialise or fall short of expectation’
That being said, it appears that the BoE’s hawkish contingent won’t be easily swayed from their course.
During a recent speech in Hull, Martin Weale made his position clear. Weale stated; ‘My own sense is that the margin of spare capacity is now small and it is currently being used up rapidly […] The tightening of the labour market means that, instead of waiting to see wage growth pick up, I think it is appropriate to anticipate that wage growth. The margin of spare capacity is shrinking rapidly and all logic suggests that ought to lead to an increase in inflationary pressures over the two- to three-year horizon which concerns the committee. An increase in Bank Rate of 1/4 point would be unlikely to slow that process to a halt immediately but there is a risk that, if the increase were delayed, inflation would be pushed above target or a rather sharper increase in Bank rate would be needed subsequently.’
So it can be safely assumed that when the minutes from the latest Bank of England policy meeting are published this week, there will be at least one yes vote in the mix.
Pound to Euro (GBP/EUR) Exchange Rate Forecast
If the vote comes in at 2:7 again, or (in what would be a shock move) the divide widens, the Pound could be given a boost and may advance on the Euro. A vote of 3:7 or higher could even push the GBP/EUR above the 1.27 level.
Of course other factors will also be driving the Pound to Euro exchange rate this week.
Thursday could be prove to be volatile for the Euro, with Markit Manufacturing and Services PMI for the Eurozone and Germany scheduled for publication.
Germany’s Manufacturing PMI is forecast to have fallen from 49.9 to 49.5, moving further away from the 50 mark separating growth from contraction. The nation’s Services PMI is also believed to have softened from 55.7 to 55, taking the Composite PMI to 53.6 to 54.1. These results could confirm fears that the Eurozone’s largest economy is on the verge of recession and undermine demand for the Euro.
The Eurozone’s Manufacturing PMI is also believed to have slipped into contraction territory, sliding from 50.3 to 49.9. The region’s Services PMI is expected to fair a little better, edging from 52.4 to 52.
Other Eurozone reports with potential to see the GBP/EUR trending higher include the currency bloc’s Consumer Confidence Index. Economists have put the measure coming in at -12 from -11.4. A steeper drop in sentiment could help the Pound to Euro exchange rate end the week in a stronger position.
The Pound to Euro exchange rate is currently trending in the region of 1.2626
