• BOE and ECB likely on different policy paths, upside risks to GBP/EUR ahead, says Lloyds bank

    Source: FxWire Pro - Commentary / 28 Nov 2016 07:38:51   Eastern Standard Time

    Central banks in Europe might be on different policy paths. According to a Lloyds Bank research report, the Bank of England does not look likely to loosen monetary policy, whereas the European Central Bank is expected to carry on with additional easing. The Quarterly Inflation Report of the Bank of England for the month of November showed that the central bank has ventured away from its previously dovish stance, with the BoE governor implying that the Monetary Policy Committee are in favour of a ‘neutral’ policy bias.

    This implies that the U.K. Base Rate might either be raised or lowered, added Lloyds Bank. The outperformance of the U.K. data, as compared with projections, after the decision to exit the European Union, has driven the shift in the stance. The outperformance of the data has also resulted in the upgrading of the near-term growth forecasts, noted Lloyds Bank. However, the central bank did cut its expectations for GDP growth further out on worries regarding the economy’s supply potential.

    On the contrary, euro area’s core inflation is expected to have stayed below the European Central Bank’s target for its forecasting horizon, implying that the policy makers might be minded to ease further. The ECB is expected to announce an extension to its asset purchase programme at the current pace of EUR 80 billion per month for additional six months through to September 2017, added Lloyds Bank. The monetary policy outlooks for the BoE and ECB imply that there are risks on the upside to GBP/EUR in the months ahead.

    At 12:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at 42.368, while the FxWirePro's Hourly Strength Index of GBP was highly bearish at -126.059. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex