Euro to Pound (EUR/GBP) Exchange Rate Recovers from Almost 20-Month Low, EUR/USD Up 0.12%
After brushing a 20-month low against the British Pound as the chasm between the policy stances of the Bank of England and European Central Bank widened, the Euro was able to edge up by 0.15 per cent against Sterling on Wednesday.
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The EUR/GBP exchange rate achieved a high of 0.8003 as investors dissected the minutes from the Bank of England’s latest policy meeting and a report showed an unexpected surge in the level of construction output in the Eurozone.
Although the BoE policy meeting minutes showed that the central bank believes that the level of slack in the UK economy will be absorbed at a faster pace than previously projected, they also revealed that all nine members of the Monetary Policy Committee voted in favour of keeping interest rates on hold.
At the June meeting the benchmark rate was left at 0.5 per cent and it seems that in spite of the hawkish rhetoric being bandied about by members like Charlie Bean, the MPC was in total agreement over this decision.
However, the minutes did show that some members were beginning to have divided opinions regarding the timeline for hiking borrowing costs.
The appeal of the Pound was a little undermined as the minutes stated; ‘The appreciation of Sterling over the past year or so meant that import prices were probably starting to pull down CPI inflation. It was possible, however, that the weakness in inflation elsewhere especially the Euro area, contained information about the underlying global inflationary pressures that might yet become evident in the UK.’
Yesterday’s UK CPI report showed that the pace of consumer inflation in the country unexpectedly slowed to a four and a half year low in May.
The minutes also noted that given the speed at which the UK’s economic recovery is progressing, ‘the relatively low probability attached to a bank rate increase this year implied by some financial market prices was somewhat surprising.’
Meanwhile, the Eurozone’s construction output showed a rebound in production in April.
Construction output in the 18-nation currency bloc contracted by 0.3 per cent in March, month-on-month, but this was wiped out by the 0.8 per cent month-on-month increase recorded in April.
On the year, construction output in the currency bloc was up 8 per cent, significantly higher than March’s annual growth of 6.4 per cent.
The EU as a whole registered a 0.6 per cent month-on-month increase in construction output.
As it stands the Euro is 0.20 per cent stronger against the Pound.
The EUR/USD pairing is also trending 0.20 per cent higher ahead of the Federal Open Market Committee’s policy announcement, taking place at 19:30 GMT.
Tomorrow’s UK retail sales data could help Sterling recover losses if the figures surprise to the upside. Economists are expecting a 0.5 per cent MoM decline in sales so an increase would be Pound supportive.
Currently the Euro is trading against the British Pound in the region of 0.8002 and is trading against the US Dollar in the region of 1.3561.