GBP/EUR Exchange Rate trading above 1.26
The Pound was trending higher versus the Euro (GBP/EUR) on Wednesday, trading between the session low of 1.2542 and high of 1.2618. Sterling was bolstered by favourable UK domestic data, as well as another split vote amongst the Bank of England’s (BoE) Monetary Policy Committee (MPC) over the subject of interest rates.
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Conversely the Euro has fallen lower following Wednesday’s final Eurozone Consumer Price Index which showed the inflation rate remained at 0.4% in August, consistent with July. However, Wednesday’s statistic has highlighted that the 18-nation economy’s 2014 inflation rate is substantially less than that of August 2013, which attained 1.3%.
The Eurozone area has struggled with inflation for some time, with some speculating that deflation could be on the horizon. Moreover, the European Central Bank President Mario Draghi has stated that any inflation levels residing below 1%, are in the ‘danger zone’.
Sterling, however, saw gains on Wednesday as fears for the Scottish referendum have cooled. As debate has heated up amongst politicians surrounding Scottish independence, the Pound has tumbled. Economists have presently forecast up to a 15% drop in the value of Sterling if Scotland vote to divorce the UK, in comparison to a 5% appreciation if the unity remains.
Wednesday marked the final day of campaigning by both ‘Yes’ and ‘No’ camps, which saw rallies in Glasgow. The latest Panelbase poll which was published on Wednesday, suggested that the ‘Yes’ vote to support Scotland leaving the UK was residing at 48%.
Head of the Better Together campaign Alistair Darling has made a plea to undecided Scottish citizens to vote ‘No’. He stated: ‘If you have such a momentous decision to take, you need to have certainty. What is very clear at the end of this long campaign, from the nationalist side there is no certainty at all. For anyone in Scotland who has any doubt, be in no doubt—you have to say “No”.’
Many issues surrounding Scottish independence have been raised in the lead-up to today’s event; however, one very important one has been the use of currency. Bank of England Governor Mark Carney has returned to the UK for the outcome of the Scottish referendum instead of attending the G20 meeting.
A Bank of England spokesperson stated: ‘It is just prudent planning, and you would expect the central bank Governor of the United Kingdom to be here for an occasion such as this.’ Carney has previously stated that Scotland will no longer be able to use the Pound if they break away from the UK.
Today’s vote is likely to cause some fluctuations in the Pound; however, Sterling made substantial gains on Wednesday as many perceived the Scottish independence ‘Yes’ vote less of a threat than previously thought.
The Pound was holding ground above the 1.26 level against the Euro as the currency found support from opinion polls that showed that the no to independence campaign is expected to win the Scottish referendum. Sterling could also find support from the release of the latest UK Retail Sales and CBI data.