EUR/GBP rallies above 0.8700 after BoE’s dovish hold

The Euro (EUR) is drawing support for a weaker British Pound (GBP) on Thursday, following a dovishly tilted monetary policy decision by the Bank of England (BoE). The pair has jumped to a fresh one-week high beyond 0.8700, from the 0.8660 area.

The Bank of England left its Repo Rate unchanged at 3.75%, as widely expected, but the voting has shown a split Monetary Policy Committee (MPC), with four policymakers calling for a rate cut, against market expectations of only two dovish dissenters.

Beyond that, the bank’s statement affirms that the risks from greater inflation persistence are becoming less pronounced, leaving the door open for further monetary easing down the road, which has sent the Pound tumbling against its main peers

In the Eurozone, the focus is on the European Central Bank’s (ECB) monetary policy decision, due later today. The ECB is widely expected to leave its benchmark interest rate unchanged at 2%. The risk for the Euro, however, is skewed to the downside with some ECB voices flagging the possibility of a rate cut, as Euro strength is threatening to trigger deflationary effects in the economy. Any hint in that direction might push the Euro lower.

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 MPC Vote Rate Cut

Interest rates are set by the Bank of England’s (BoE) Monetary Policy Committee (MPC). The MPC sets an interest rate it judges will enable the BoE’s inflation target to be met. It is comprised of nine members – the Governor, the three Deputy Governors, the Bank’s Chief Economist and four external members appointed directly by the Chancellor. Investors look at each member’s vote in order to seek cues over how unanimous was the decision on interest rates.