British Pound to Euro (GBP/EUR) Hits 2-Year High on Unionist Victory
In the immediate aftermath of the Scottish referendum, in which the pro-union campaign won by a margin of 55%, Sterling made gains against all sixteen of its most traded major currency peers. The Euro, meanwhile, continues to suffer from a poor response to its longer-term refinancing operations, or TLTRO.
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The Pound Sterling to Euro exchange rate is currently trending in the region of 1.2727.
The build-up to the Scottish referendum had been relatively quiet and inconsequential for the value of Sterling but in the past few weeks a succession of polls, which outlined just how close the voting could be, saw Sterling plummet across the board.
Sterling has also been subject to losses from a succession of less than impressive domestic data publications. Wednesday saw inflation cool from 1.6% to 1.5%; bringing it away from the Bank of England’s target of 2.0%. Thursday revealed that average wages increased by only 0.6% in August which is the coolest growth since comparable records began in 2001. The lack of correlation between wages and inflation has always been an issue for the British economy, and has not changed despite the BoE opting to maintain the low benchmark interest rate.
Those invested in the Euro would have been pleased with the European economic data of late which has been, on the whole, much improved from previous weeks. However, the single currency invited yet more negative sentiment on Thursday after their TLTRO allotment didn’t have the desired impact. The European Central Bank announced that Eurozone lenders had borrowed €82.6 billion which is far below expectations of around €100-150 billion. Some analysts believe that this could prompt the ECB to resort to even more dramatic stimulus measures, and the quantitative easing rhetoric has resurfaced.
Jennifer McKeown, European economist at Capital Economics stated; ‘This puts a major dent in the policy’s chance of success and hence intensifies the pressure on the ECB to take bolder action. Admittedly, there will be another operation on 11th December, but we can’t see why banks would borrow a lot more money then.’
The Pound Sterling to Euro exchange rate has hit a low today of 1.2703.
Friday morning saw the clenched jaws of traders relax after the Scottish referendum showed the ‘better together’ campaign to have won by a margin of 55%. Prime Minister David Cameron snubbed out fears of a future Scottish bid for independence stating; ‘There can be no disputes, no reruns – we have heard the settled will of the Scottish people’.
With an absence of British domestic data on Friday the Pound is likely to continue to hold its gains against the majority of the majors.
Friday’s European publications have printed reasonably positively, although the data isn’t of high enough significance to throw off the waning sentiment from the TLTRO failure described above. German producer prices equalled the previous figure of -0.8% and both the seasonally adjusted and non-seasonally adjusted Eurozone current account increased from the previous figures.