Pound to Euro Exchange Rate Drops As Anxiety Over UK Election Increase
Thu, October 21, 2021

Pound to Euro Exchange Rate Drops As Anxiety Over UK Election Increase

The pound to euro exchange rate continues to drop as anxiety over the UK election builds up and the Bank of England is also set to announce changes in its policy / Photo by: Joegoauk Goa via Flickr

 

The pound to euro exchange rate continues to drop as anxiety over the UK election builds up and the Bank of England is also set to announce changes in its policy, reports UK news provider Express.

The pound euro pairing is currently trading around €1.1578, down 0.33 percent. Pound to the dollar exchange rate, on the other hand, is at €1.2835, down 0.29%. Jonathan Haskel and Michael Saunders were the first members of the BOE’s Monetary Policy Committee to vote for having lower interest rates ever since the bank’s last cut rates in 2016. 

Bank of England’s Monetary Purpose

“Our Monetary Policy Committee has voted by a majority of 7-2 to maintain Bank Rate at 0.75 percent,” states Bank of England. It also announced that its committee unanimously voted to maintain the UK government bond and stock of corporate bond purchases. It published on its official website that they set their monetary policy to meet the 2 percent inflation target and to likewise help sustain employment and growth. During its meeting on November 6, the MPC voted 7-2 to maintain a 0.75 percent bank rate. It was both Haskel and Saunders who wanted to cut-rate now instead of leave it on hold.

Currencies tend to drop when the issuing bank enters an interest rate cut cycle. “It was a bit of a surprise in that two members voted for an immediate cut,” says Forex Trading platform’s Chief Market Analyst Neil Wilson via British pound news and forecast platform Pound Sterling Live.

Haskel and Saunders explained that they voted to cut the interest rates because they have observed that the country’s job market has started to deteriorate. They added that while the UK still retains its ability to generate employment and wages, vacancies have decreased dramatically. This suggests that the job market may soon deteriorate and the interest rate cut will offer the UK’s economy the support it needs.

The majority of the MPC members, on the other hand, believe that the UK economy continues to perform, consistent with keeping the rates unchanged. In a statement, the BOE’s Monetary Policy Committee said that if Brexit uncertainties will continue to be difficult and global growth will fail to stabilize, the policy “might need to reinforce the expected recovery” in the United Kingdom’s inflation and GDP growth. By Brexit, it refers to “British exit” or the UK leaving the economic and political European Union that involves 28 countries. the EU allows free movement of people and free trade to work and live in whichever country they choose in the EU. If the UK leaves, it will be the first EU member state to withdraw from the union.

Wilson opined that the BoE seems to have accepted that the other countries are already in an easing cycle while the UK's central bank cannot fight the tide. He says that if it’s not just the beginning of an election campaign in the country, there could be more members to call for ease of cycle.

In a statement, the BOE’s Monetary Policy Committee said that if Brexit uncertainties will continue to be difficult and global growth will fail to stabilize / Photo by: Eluveitie via Wikimedia Commons

 

Monetary Policy Report

The bank’s recent monetary policy report, which is composed of a forecast for inflation, economic growth, and other economic variables, noted that the country’s GDP growth has been volatile this 2019 because of the impact of weaker global growth and Brexit-related uncertainties. They also forecast the inflation for the end of this year at 1.4 percent, a drop from a 1.6 percent forecast in August. For end-2020, it forecasts inflation to be cut from 2.1 percent to 1.5 percent. The bank’s inflation expectations are suggestions that it may no longer increase the rates. The monetary policy report also reads that the GDP growth slowdown partly indicates the increasing trade protectionism that has affected the manufacturing industry the most.

The Committee ensured the public that they will closely monitor the responses of households and companies to Brexit developments and the prospects for global growth recovery.

Official Exchange Rate: World

The official exchange rate is the exchange rate determined by the national authorities or in the legally-sanctioned exchange market. According to data and statistics platform Knoema, Iran is the top country in the world in terms of exchange. As of 2018, its exchange rate was 40,864.3 LCU (local currency unit) per US dollars, accounting for 21.01 percent of the world’s exchange rate. Next in Iran is Venezuela with a 33,766.0 exchange rate, followed by these countries: Vietnam (22,602.1), Indonesia (14,236.90), Guinea (9,011.1), Lao PDR (8,489.2), Uzbekistan (8,069.6), Sierra Leone (7,931.6), Paraguay (5,732.1), and Cambodia (4,051.2). 

The top five countries, Iran, Venezuela, Vietnam, Indonesia, and Guinea, account for a total of 61.93 percent of the world’s exchange rate. Some countries with the lowest exchange rates in 2018 are Kuwait, Bahrain, Oman, United Kingdom, San Marino, Montenegro, and Switzerland. Generally, having a higher exchange rate is better because as one exchanges currencies, they get more foreign currency that they’re buying.

A strong exchange rate may, on the other hand, depress growth in the economy because exports are expensive. This means a higher demand for imported goods and less demand for goods produced domestically.