GBP to EUR Exchange Rate Continues to Trend High on ECB Rate Revision
Having softened considerably on Wednesday the Pound to Euro exchange rate has surged on Thursday after the European Central Bank elected to cut interest rates.
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The Pound Sterling to Euro exchange rate is currently trending in the region of 1.2625.
Wednesday was not a particularly strong day for Sterling which failed to make gains against any of its competitors.
A YouGov poll discovered that the lead held by the unionists over the nationalists regarding Scottish independence fell from 22% to 6% in under a month. With the decision on the 18th September looming ever closer trader anxieties over the likelihood of an independent Scotland saw Sterling crash across the board.
A positive UK Services PMI which hit 60.5 wasn’t enough to tempt traders back to Sterling. Having tried to establish a change from a domestic based economy to an economy reliant upon export, the positive services print, coupled with Monday’s negative manufacturing print, shows that desire to be a long way off; and traders pulled away from Sterling believing that domestic based economic growth is unsustainable.
In contrast the Euro experienced increased demand on Wednesday despite having had a total of seven negative data revisions. The reasons for this were difficult to pinpoint although it is likely that investors assured themselves that the European Central Bank wouldn’t alter the interest rate or add further stimulus…how wrong they were.
The Pound Sterling to Euro exchange rate has hit a low today of 1.2506.
Thursday has seen a complete reversal in the Pound to Euro exchange rate after the European Central Bank opted to cut the interest rate to 0.05%, and the Bank of England chose to continue with the long established 0.50% rate.
Not only did the European Central bank cut its base rate by 10 basis points, but it also introduced a new stimulus program. In the proceeding press conference ECB President Mario Draghi revealed that the ECB plans to purchase a ‘broad portfolio of transparent asset backed securities’. Valentin Marinov, currency strategist at Citi, explains this; ‘The ECB will now be giving banks money to spend and penalising them for not doing so […] the ECB is the first central bank to announce large-scale asset purchases and negative deposit rates. The Euro could weaken further if European banks uses the cash to purchase assets abroad via Euro-funded carry trades’.
The Bank of England, however, did act predictably and decided not to change the interest rate of 0.50%.
The Pound Sterling to Euro exchange rate has hit a high today of 1.2506.
The Pound Sterling to Euro exchange rate is currently trending in the region of 1.2607.
Having fallen across the board after the European Central Bank cut its rates by 10 basis points, the Euro has continued to trend softly versus all of its major peers.
The Pound has been similarly weak versus many of its competitors despite the Bank of England opting not to change their monetary policy; in fact the only major currency the Pound is strong against is the Euro. The Pounds softness can be attributed to a succession of disappointing Eurozone domestic data publications and to heightened trader anxieties over the Scottish bid for independence.
German data from Friday morning has seen year-on-year Industrial Production eclipse the forecast figure of 0.6% with the actual data showing 2.5% growth in July. This is unlikely to have much impact, however, as the ECB rate cuts are still fresh in trader focus.