- The euro is consolidated near maximums of several weeks.
- A series of weak data from the United Kingdom has undermined confidence in the pound.
- The IPC figures of the United Kingdom and the BOE decision could increase the weakness of the pound later this week.
Euro buyers seemed on Monday to keep bassist attempts limited in the 0.8500 area and keep intact the immediate upward trend of the EUR/GBP. The pair is extending profits on Tuesday and approaches six weeks, at 0.8545.
The German Zew index, published earlier on Tuesday, revealed an improvement greater than expected in the economic feeling in June, which provided a moderate support to the euro.
The confidence of institutional investors in the German economy jumped to 47.5 in June, almost twice the reading of May 25.2 and well above the market forecasts of 35. The feeling on the economic prospects of the Eurozone has improved to 35.3 since 11.6, also exceeding the expectations of a reading of 23.5.
The pound is kept on the defensive before the BOE decision
Libra, on the other hand, remains defensive before the monetary policy decision of the Bank of England on Thursday. It is widely expected that the BOE maintains the rates without changes after the reduction of 25 basic points approved at the last meeting, but could insinuate greater relief due to the weakened economic perspective.
The data of the United Kingdom published last week showed that the economy contracted in April due to the turbulence of US tariffs, with industrial production decreasing beyond expected and increasing unemployment figures.
The United Kingdom CPI data will be published on Wednesday and frame the BOE decision. Any indication towards greater monetary relief will probably highlight a monetary divergence with the hard line rhetoric of the ECB and could give an additional impulse to the euro.
BOE FAQS
The Bank of England (BOE) decides the monetary policy of the United Kingdom. Its main objective is to achieve prices stability, that is, a constant inflation rate of 2%. Your instrument to achieve this is the adjustment of basic loan rates. The BOE sets the type to which it provides commercial banks and to which banks lend themselves to each other, determining the level of interest rates in the economy in general. This also influences the value of sterling pound (GBP).
When inflation exceeds the objective of the Bank of England, it responds by raising interest rates, which makes access to credit for citizens and companies more expensive. This is positive for sterling pound, since higher interest rates make the United Kingdom a more attractive place for world investors to invest their money. When inflation falls below the objective, it is a sign that economic growth is slowing down, and the Bank of England will consider the possibility of lowering interest rates to reduce credit in the hope that companies ask to borrow to invest in projects that generate growth, which is negative for sterling pound.
In extreme situations, the Bank of England can apply a policy called Quantitative Easing (QE). The QE is the process by which the BOE substantially increases the flow of credit in a stuck financial system. The QE is a policy of last resort when the descent of interest rates does not achieve the necessary result. The QE process implies that the Bank of England prints money to buy assets, normally state bonds or corporate bonds with AAA rating, banks and other financial institutions. Which usually translates into a weakening of the pound sterling.
The quantitative hardening (QT) is the reverse of the QE, and is applied when the economy is strengthening and inflation begins to rise. While in the QE the Bank of England (BOE) buys state and business bonds from financial institutions to encourage them to grant loans, in the QT the BOE stops buying more bonds and stops reinvesting the main one that expires of the bonds it already has. It is usually positive for sterling pound.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
