Pound to Euro Rate Slips to 1.166 as BoE Edges Closer to Rate Cut

March 21, 2024 – Written by John Cameron


A slightly more dovish Bank of England policy stance undermined the Pound on Thursday while there were mixed Euro developments.

The Pound to Euro (GBP/EUR) exchange rate initially strengthened to 1.1720 before a slide to 20-day lows just below 1.1670.

The Euro drew technical support from a jump in the EUR/CHF rate following a surprise Swiss National Bank interest rate cut.

This was, however, offset to some extent by increased speculation over an early ECB move to cut interest rates.

Expectations that the BoE and ECB will both cut rates in June should limit potential Pound selling.

The Bank of England held interest rates at 5.25% at the latest policy meeting, in line with consensus forecasts.

There was, however, a shift in the vote split with an 8-1 vote for the decision.


Mann and Haskel who voted for a rate hike in February dropped their call and voted with the majority while Dhingra again voted for a cut in rates to 5.00%.

Markets overall were more confident that the BoE would cut rates at the June policy meeting.

According to ING; “As the case builds over the coming months for the start of the BoE easing cycle, we would expect EUR/GBP to start drifting a little higher and major support at 0.8500 to be cemented as a medium-term floor. (strong GBP/EUR resistance at 1.1765).

According to Bank Governor Bailey; “In recent weeks we’ve seen further encouraging signs that inflation is coming down. We’ve held rates again today at 5.25% because we need to be sure that inflation will fall back to our 2% target and stay there.”

He added; “We’re not yet at the point where we can cut interest rates, but things are moving in the right direction.”

ING is backing a rate cut in August as the bank waits for inflation data, although it played down the importance of the timing.

It added; “We’re sort of splitting hairs here though, and the bigger picture is that once rate cuts begin, we expect further cuts at each meeting this year. That means 100bp of easing in total during 2024.”

The UK PMI manufacturing index improved to a 20-month high of 49.9 for March and only marginally below the 50.0 threshold for expansion.

This was above consensus forecasts of 47.9 and the previous figure of 47.5.

The services-sector index edged lower to a 3-month low of 53.4 from 53.8 previously and slightly below expectations of no change. The overall composite output index was marginally lower.

Overall prices charged increased at the fastest rate since July 2023.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: “Further signs of the UK economy having pulled out of last year’s brief recession are provided by the provisional PMI data.”

He did, however, express concerns over inflation trends; “March’s PMI warns of elevated underlying price pressures which will likely add to calls for restraint in any pivot to lower interest rates until there are firm signs of lower wage growth.”

Euro-Zone PMI data was notably mixed with the manufacturing index weakening to 3-month low of 45.7 from 46.5 previously while the services-sector index improved further to a 9-month high of 51.5 from 50.2 previously.

Selling-price inflation eased slightly from the 9-month high in February.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, commented “If you were hoping for a recovery in the manufacturing sector in the first quarter, it’s time to throw in the towel.”

He did add; “the fact that the services PMI moved further into expansionary territory at 51.1 should be seen as a positive development.”

Matthew Landon, Global Market Strategist at J.P. Morgan noted a dovish shift but added. “Still, the BoE looks more likely to be in the ‘late cutter’ camp. Even with recent progress that we have seen on price pressures, the UK still looks to be a couple of steps behind the rest of the world on their inflation battle.”

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