GBP/EUR: Monetary policy developments have been a key driver - Lloyds Bank

In view of the analysts at Lloyds Bank, the combination of moderate GBP strength and EUR weakness has led GBP/EUR higher in recent weeks, with the pair briefly spiking close to 1.18 in early April as recent monetary policy developments have been a key driver of this rally.

Key Quotes

“Surprisingly, at March’s Bank of England policy meeting, external MPC member Kristin Forbes voted for an immediate hike in UK Bank Rate. In contrast, key ECB figures, including President Draghi and Chief Economist Praet, dampened expectations that the ECB may raise the deposit rate before concluding its QE programme. In any case, we remain of the view that policy rates in both regions will remain on hold through 2017. Arguably of more importance over the coming months will be developments in the political landscape.”

“Uncertainty surrounding the UK Brexit negotiations could add to the volatility around GBP. In addition, the French and German elections, and Greek debt negotiations, present clear risks to the EUR. Our central expectation is for GBP/EUR to hold around its recent range highs, ending the year around 1.18. However, given the prevailing risks, there is scope for significant bouts of volatility in the interim.”