This week marks an important time as the Bank of England’s rate decision is to be decided on Thursday and will surely have an effect on pound to euro interest rates.
As it stands, the GBP/EUR remains at a relatively average position, after opening last week at the 1.1735€ before reaching a one month high of 1.1901€ on Friday morning and now trending closer to 1.1843€ at the time of writing.
Michael Brown, Senior Market Analyst for Caxton FX, told Express.co.uk: “Sterling faced headwinds on Friday, despite better than expected flash PMI surveys pointing to a significant post-election ‘Boris bounce’ in the UK economy, and casting significant doubt on this Thursday’s BoE rate decision.
“The pound’s struggle came as markets broadly struck a risk-off tone, as well as with investors taking profit and risk off the table ahead of the weekend.
“This week, with data lacking, all eyes are on Thursday’s BoE decision. Markets see the decision as a coin-flip, however it would appear difficult for policymakers to frame a cut given recent data, hence my expectations for policy to remain on hold.”
The BoE will make its policy decision on Thursday, with many paying close attention to the tone the bank takes.
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Exchange rate: The pound’s fate remains unknown ahead of BoE’s potential interest rate cuts
If the tone from BoE is optimistic it could help the pound’s sustainability.
However, if BoE remains concerned around the UK’s growth, the pound could sustain new losses.
Earlier this month, Mark Carney, Governor of Bank of England, and two other policy makers publicly discussed the possibility of a rate cut.
BoE policy maker Silvana Tenreyro made a speech in January, where she said that the British economy’s response to Brexit developments would be key to whether the Bank of England cuts interest rates.
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“A key input in the decision is how uncertainty unwinds going forward, and how that impacts on demand,” said Ms Tenreyro.
“We will be watching very closely how firms and households respond to Brexit developments.
“We are talking about the coming months, or I am talking about the coming months, on the possibility of further stimulus.”
Her points were followed by BoE policymaker Gertjan Vlieghe, who told the Financial Times he will consider voting for a rate cut depending on how the economy has performed since the election in December.
“It doesn’t take much data to swing it one way or the other and the next few [MPC] meetings are absolutely live,” he said.
Exchange rate: GBP/EUR is now trending closer to 1.1843€ at the time of writing
“I really need to see an imminent and significant improvement in the UK data to justify waiting a little bit longer.”
Despite these concerns, there has been a bounce in business since Prime Minister Boris Johnson won the re-election on December 12.
Additionally, Friday’s purchasing managers’ index (PMI) was the strongest since September 2018.
The early readings of the IHS Markit/CIPS UK Purchasing Managers’ Index (PMI) showed a growth in Britain’s vast services sector in January for the first time since August.
As the UK anticipates BoE’s decision on Thursday, what does this mean for British holidaymakers?
The Post Office is currently offering a rate of €1.1433 for over £400 and €1.1658 for over £1.1497.
The good news announced this month for Britons is that Brexit will not affect holidays in 2020.
The UK is now on track to enter a transition period at the end of the month.
This means that all travel requirements and arrangements will remain the same until at least the end of December 2020, said travel association ABTA.
According to ABTA research, seven in ten people are planning a trip abroad this year.
Mark Tanzer, ABTA Chief Executive, said: “The UK is primed to enter a new Brexit phase from January 31, when trade talks begin, and when it does nothing will change when it comes to travel.
“This means that valid passports can still be used, EHIC cards will still be valid and the same gates can be used at border checkpoints.
“People can continue to make their travel plans with confidence that things won’t change until at least the end of 2020.”