THE pound is holding steady against the euro this morning as markets await the Bank of England’s (BoE) first policy meeting of the year.
GBP/EUR is currently at around €1.127, holding close to the morning’s opening levels.
Sterling sentiment is showing resilience despite a drop in UK house prices as markets remain muted ahead of the BoE meeting tomorrow afternoon.
While the bank is widely expected to leave rates on hold this month, markets will be hoping that the BoE may provide some insight into its plans for monetary policy this year.
Following its interest rate hike in November, BoE Governor, Mark Carney suggested that the next rise in rates was unlikely to be for some time.
However, since then, the UK’s latest GDP figures have shown that the UK economy expanded at a faster than expected pace in 2017.
This, combined with robust inflation, has led to many analysts speculating that the BoE may follow other major central banks in accelerating the pace of its monetary tightening this year.
Fabrice Montagne, head UK economist at Barclays said: “Emboldened by constructive sentiment and healthy fourth-quarter growth, it [the BoE] might be open to discussing an alternative tightening path.”
At the same time the euro is poised to move higher today following reports that Angela Merkel has brokered a deal with the Social Democrats (SPD) to create a new ‘grand coalition’.
This will help to end months of uncertainty in German politics, after September’s general election led to a breakdown in Merkel’s previous alliance with the SPD.
The deal still needs to be voted on by the SPD’s members, so any agreement is still far from set in stone.
Looking ahead, the BoE policy meeting is likely to be the key source of movement in the GBP/EUR exchange rate tomorrow.
The pound’s fate will be tied to whether the bank hints at the possibility of a rate hike in 2018.
Meanwhile the euro may fall back on Thursday with the publication of Germany’s latest trade figures, with economists forecasting that Germany’s trade surplus will have retreated in December.