Pound Slides as Energy Prices Bite and Rate Hike Fears Grow
The British Pound to Euro exchange rate (GBP/EUR) has recovered slightly after falling to two-week lows near 1.1620 following the Bank of England's decision to leave interest rates unchanged.
Policymakers are still hesitant to tighten monetary policy, but persistently high energy prices are reducing their room for maneuver, with a growing number of investment banks now forecasting a November rate hike.
According to Danske Bank, near-term risks are connected to global energy prices and the developments in Iran, as well as the global investment environment. They forecast a decline to 1.1360 on a 6-month view.
The outlook for monetary policy will be a key element, with investment banks debating the policy outlook. MUFG noted that the BoE is still placing more emphasis on tightening financial conditions in helping to dampen upside inflation risks.