GBP EUR exchange rate: the week ahead May 22
The GBP EUR trade was higher this week as the pair attempts to climb through inflationary pressures in the UK. Employment was solid in the UK, while the European economy saw its growth forecasts revised downwards. Attention will turn to this week’s PMI figures to see how manufacturing and services are faring in the UK and Europe amid various global pressures.
The GBP against the EUR touched 1.1900 over the week but fell back to 1.1800 over the weekend.
BoE’s Bailey warns of ‘doomsday’ food prices, government hits back
The Governor of the Bank of England (BoE) warned of “doomsday” food prices last week, while adding that he felt “helpless” in the face of soaring inflation.
Bailey was unhappy with criticism that policymakers had moved slowly in their efforts to tackle inflation, blaming a “bad situation” on external shocks such as the war in Ukraine and China’s lockdown.
“We can’t predict things like wars – it’s in nobody’s power,” he said.
But he was more concerned about food supply chain issues stemming from Ukraine.
“The inflation risk factor I’m going to sound rather doomsday about is food,” he said.
After speaking to Ukraine’s finance minister, Bailey said farmers in the country are able to plant crops this spring but have “no way” to ship them.
“Ukraine has food in store, but it cannot get out at the moment,” he said.
“As it stands, it’s getting worse,” he continued. “And that’s a major concern.”
But Cabinet Secretary Brandon Lewis said he was “surprised” by the language Mr Bailey used to describe the rising cost of living pressures.
The European Central Bank run by hawkish commentators
The European Central Bank (ECB) is focused on interest rate hikes after the latest inflation data. Minutes of the meetings show hawkish members of the central bank taking control of the policy direction.
Markets have now raised their expectations of an ECB rate hike with expectations for rates higher by more than 100 basis points. The ECB should take advantage of the June meeting to launch the process of raising rates by announcing the end of net bond purchases. That could open the door for 25 basis point hikes at each of the remaining four policy-setting meetings in 2022.
ING analysts said:
“The minutes of the ECB’s April meeting have just confirmed that the hawks increasingly have the upper hand in the discussions. A rate hike in July is no longer uncertain, the only uncertainty is whether it will be 25 bps or 50 bps.
Markets will also be keeping a close eye on the Northern Ireland protocol issue this week, with the EU’s Joao Vale de Almeida saying he wants to “fix, not undo” the deal. The UK has confirmed it wants to change elements of the protocol, leading to threats of retaliation from the EU and a deterioration in post-Brexit trade relations.