It’s a busy finish to the week for euro to pound exchange rates, with many economic events to keep an eye on. Tomorrow the Bank of England (BoE) will release their latest interest rate decision and all eyes will turn to the monetary policy committee to see if they cut interest rates into negative territory. The theory behind the cut is that if the British public are charged to save money, this will incentivise them to spend instead of saving, which would give the economy a boost. However, when a Central Bank cuts interest rates and especially into negative territory this can cause the currency to devalue. Therefore, a cut to negative territory could see the euro make further gains against sterling.
UK inflation Continues to Put Strain on the Bank of England
This morning the UK released their latest inflation numbers at 0.5%. The Bank of England’s target is 2% therefore this is another reason why the central bank may think about making a cut into negative territory. The only save grave for clients that are selling pounds to buy euros is that inflation was always set to fall due to the pandemic and now that the UK is starting to ease its restrictions could rise in the months to come when the British public start spending.
Will the Bank of England Minutes and Bond Buying Program Impact EURGBP?
Alongside the interest rate decision, the Bank of England will also release their latest minutes and an update on the Bond buying scheme, known as Q.E. The minutes will be a good read as they will give an insight to how the economy is performing in the eyes of the Central Bank, but will also give an indication to why they decided to keep interest rates on hold or to cut. Furthermore, an increase in the Bond buying scheme is expected and there is an argument to suggest that this may actually benefit sterling as the Governments net borrowing numbers should go down and stimulus will be provided quicker around the UK. Initial reports are suggesting the Q.E program will be increased to £725 billion from £645 billion.
EU Summit to Influence the Euro
Also, on Thursday and Friday, key EU officials will meet in Brussels for the EU summit. This is a meeting which outlines guidelines and policy for the EU and at the last meeting they came up with 4 key priorities which are; protecting citizens and freedoms, developing a strong and vibrant base, building a climate neutral, green fair and social Europe and promoting European interest and values on the global stage. You can argue that the pandemic and Brexit both have an impact on the priorities. Therefore, it will be interesting to see how the leaders discuss these topics when discussing the priorities.
This week UK Prime Minister Boris Johnson held a video conference with EU officials to discuss the progress that has been made in recent weeks. At present the talks appear to be deadlocked as both sides are not prepared to give into each other demands. The consensus was that the PM wants a deal thrashed out this summer so the UK can leave the EU with a deal at the end of the year. After the meeting the PM was optimistic that a deal will be reached which provided some support for the pound against the euro.
To summarise, if you are selling euros to buy pounds or vice versa this week, the key data releases to look out for are the Bank of England interest rate decision, minutes and Q.E program all released Thursday afternoon and the EU summit which is taking place all day Thursday and Friday.
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