Sterling initially fell against the Euro today following a poor report about UK Retail Sales, and this pushed GBP/EUR into the mid €1.11’s. However following the European Central Bank policy announcement, rates have recovered to €1.1233 at the time of writing.
ECB announcement causes GBP/EUR rates to rise by half a cent
The ECB announced a reduction in their stimulus measures, announcing QE would continue at a reduced rate of €30bn per month. The fact that they extended the measures until the end of 2018 was the key point, and this weakened the Euro slightly, making it cheaper to purchase and pushing Pound/Euro rates up slightly.
Will the Pound rise if the Bank of England raise interest rates?
It’s not a massive increase however, and as we’ve outlined in recent posts significant downside risks remain for the GBP/EUR pair due to uncertainty caused by Brexit. The only thing on the horizon that might push the rate higher is next week’s BoE decision on whether they will push interest rates back up to 0.5%. Many think its certain that they will, and so for the most part this is now already priced into the market. If they do raise, we might see a slight increase in GBP/EUR rates but I wouldn’t expect it to go up much. The decision will be a fine line however, and if they decide to hold of raising rates, this will be negative for the Pound and push rates lower.
Should you buy Euros now or wait?
Those that need to buy Euros should perhaps consider fixing a rate while the current levels are available. It could go up further of course if the BoE raise rates, but in my opinion there is more to lose than there is to gain by hanging on too long. A rate rise would likely only cause a modest rise in the value of the Pound. If however rates are left on hold, then I think the Pound would drop by at least a cent.
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