Euro rallies against the British Pound as BoE leaves rates unchanged

EUR/GBP hits Fresh three-week highs at 0.8674 after the BoE's interest rate decision.
The VBoE left rates unchanged at 3.75% with two policymakers calling for a hike.
Grim German IFO inflation and growth forecasts are weighing on the Euro on Thursday.

Guillermo Alcala FXStreet

The Euro (EUR) accelerated its recovery against a weaker British Pound (GBP) on Thursday, following the Bank of England’s (BoE) decision to leave interest rates unchanged. The EUR/GBP pair has broken above the previous June’s peak in the 0.8655 area and is exploring fresh three-week highs at 0.8670 at the time of writing.

The BoE posted no surprises on Thursday and left the Bank Rate unchanged at 3.75% as widely expected. The decision was approved by 7 votes to two, as Swati Dhingra joined Huw Pill in calling for a 25-basis-point rate hike.

The summary of the bank’s monetary policy meeting observed the moderation in inflationary pressures shown by May’s data. The BoE also cut inflation forecasts for this year, while warning about volatile energy prices, and revised up forecasts for underlying growth from April’s estimates.

UK unemployment falls with wages growing fast

Earlier on the day, data released by National Statistics showed that the UK Unemployment Rate declined to 4.9% in the three months to April, down from 5% in the previous period, against market expectations of a steady 5% rate

The report also stated that the UK economy created 100K jobs in the mentioned period, down from the previous 148K increase, but above the 80K consensus. In this context, wages continued growing at a strong pace, with Average Earnings Excluding Bonus steady at 3.4%, against expectations of a slowdown to 3.2%. Including bonuses, salaries grew at a 4.4% yearly rate, unchanged from the previous month.

In the Eurozone, the German IFO institute confirmed the outlook of strong inflation and sluggish growth for the region’s major economy, which is likely to act as a headwind for Euro rallies. IFO forecasts show that German inflation is expected to average 2.9% this year and 2.7% in 2027, while the economy is seen growing 0.8% this year, unchanged from previous estimations, and another 0.8% in 2027, this one revised down 1.2%.

Economic Indicator

BoE Interest Rate Decision

The Bank of England (BoE) announces its interest rate decision at the end of its eight scheduled meetings per year. If the BoE is hawkish about the inflationary outlook of the economy and raises interest rates it is usually bullish for the Pound Sterling (GBP). Likewise, if the BoE adopts a dovish view on the UK economy and keeps interest rates unchanged, or cuts them, it is seen as bearish for GBP.

Economic Indicator

BoE Monetary Policy Summary

The Monetary Policy Report, released by Bank of England, contains the outcome of their vote on interest rates and other policy measures, along with commentary about the economic conditions that influenced their votes. Most importantly, it discusses the economic outlook and offers clues on the outcome of future votes.

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