Pound Euro (GBP/EUR) Exchange Rate Rises, BoE Rate-Setters Hint at Negative Interest Rates

GBP/EUR Exchange Rate Edges Higher as BoE Discusses Stimulus Response to Covid-19 Crisis

The Pound to Euro (GBP/EUR) exchange rate rose by 0.3% today, with the pairing currently trading around €1.100.

Sterling held steady today despite Silvana Tenreyro, a Bank of England (BoE) rate setter, backing an early adoption of negative interest rates to boost UK’s flagging economy.

In an interview with the Sunday Telegraph, she said:

‘We have been discussing our toolkit in recent months, including how effective negative rates might be in the current context. The evidence has been encouraging.’

However, the BoE’s Chief Economist Andrew Haldane said that the British economy is recovering faster-than-expected, and further recommended that the bank should reserve any further stimulus.

Nevertheless, with Covid-19 infection rates rising throughout much of the UK, GBP investors are becoming concerned for the economy in the autumn and winter months.

Today also saw headlines spark concerns for the British high street as a second wave of the coronavirus could prove a knockout for retailers.

Euro (EUR) Steady as Improving Chinese Economy Weighs on Safe-Haven Assets

The Euro (EUR) held steady today after risk-sentiment improved following news that China’s industrial profits jumped for their fourth consecutive month.

As a result, investors have sought out riskier assets as the world’s second-largest economy continues its recovery from the Covid-19 crisis.  

Stephen Innes of AXIcorp said:

‘Profits of China’s major industrial firms remained on the steady path to recovery in August. Indeed robust earnings in China’s colossal production and operations engines provided further evidence of a strong economic comeback.’

Meanwhile, single currency investors are remaining cautious as Covid-19 continues to spread throughout Europe.

EUR investors will be awaiting today’s speech from the European Central Bank’s President, Christine Lagarde.

Lagarde is expected to face questions over the strength of the Euro, the Eurozone’s faltering economic recovery, and the prospect of further ECB stimulus packages.

If she is notably dovish about the Eurozone’s economic performance, however, the single currency would suffer.

GBP/EUR Forecast: Could the Return of Brexit Woes Drag Down Sterling This Week?

Euro (EUR) investors will be looking ahead to tomorrow’s flash release of Germany’s Harmonized Index of Consumer Prices for September. Any indications that the Eurozone’s powerhouse economy is on the road to recovery would prove EUR-positive.

Tomorrow will also see the release of the Eurozone’s finale Business Climate report for September. If this drops, then the EUR/GBP exchange rate would likely slip. Last week also saw the Eurozone’s economic outlook struggle.

Sterling investors will be keeping a close eye on August’s UK Mortgage Approvals gauge. Any improvement in the UK’s economic outlook would boost the Pound.

However, GBP traders will be looking ahead to tomorrow afternoon’s speech from BoE Governor Andrew Bailey. Any further indications that the Bank could take interest rates into negative territory would prove GBP-negative.

The GBP/EUR exchange rate could dip this Brexit comes back into focus. As a result, souring UK-EU relations could spark off fears of a hard Brexit and drag down Sterling.