Pound to Euro Exchange Rate: The Pound slumped to the lowest level in a week versus the Euro


Foreign Exchange Rates Currency News - The Pound declined against the U.S Dollar yesterdayPound to Euro exchange rate: The Pound declined through 1.58 against the U.S Dollar yesterday.

Sterling / Euro and US Dollar exchange rates

The Pound slumped to the lowest level in a week versus the Euro before the Bank of England’s Monetary Policy Committee announces its decision on UK interest rates this lunchtime. The UK currency was relatively unchanged versus the Dollar, after reaching a low just above 1.57, as the central bank is expected to leave rates and the bond purchasing plan on hold this month.

There was little in the way of fresh economic data released in the UK and there will be caution surrounding the Euro-zone. Sterling was hampered by a generally downbeat assessment of the banking sector, which reinforced the longer-term economic risks surrounding the economic outlook. Given the very low expectations of the BoE announcement there will be a lot of volatility if policy makers ‘pull a surprise’.

The Bank of England governor Mervyn King is facing a mini revolt within the monetary policy committee, as a dispute escalates over whether inflation threatens the UK economy and whether more aggressive stimulus should have been sanctioned last month beyond the £50 billion that was approved. All nine policy makers have made public statements over the past two weeks and there are clear divisions forming.

Martin Weale indicated that he may not further any more asset purchases once the current round of quantitative easing finishes in May, while David Miles said there’s definitely a case for “aggressively” loosening policy even further. The conflict of opinion within the MPC may be unsettling for the Pound but we will have to wait for the minutes to be released later this month to gauge the voting pattern of today’s result.

The debate surrounding monetary policy coincides with an uncertain outlook for the UK economy, as the recent increase in oil prices threatens to stoke inflationary pressures. The economy is also struggling to bounce back from the fourth quarter contraction, although recent PMI surveys indicate the economy will avoid another technical recession.

Although inflation eased to the lowest level in 14 months at 3.6% in January, it’s still well above the bank’s 2% target and oil prices have risen 18% in the past six months alone. The BoE has predicted inflation will slow to 1.9% by the end of the year and 1.8% by the end of 2013. MPC members were unanimous to increase QE last month, but were divided on the size of the increase.

Euro / US Dollar

The Euro slipped below 1.32 against the U.S Dollar and retreated to lows in the region of 1.31 through the course of the day. Weak German industrial orders data undermined sentiment even further, while the German Finance Minister stated that he had talked openly with Greek officials about a Euro-zone exit for the struggling nation.

There was inevitably further uncertainty surrounding the Greek debt situation, as the PSI acceptance deadline drew closer. Despite expectations that an agreement to avoid a default would be reached, there were uncertainties surrounding the threat that collective action would likely trigger a credit event. There is also caution ahead of the ECB interest rate announcement today, though markets are expecting policy makers to keep rates on hold.

In the U.S, the ADP employment, which can provide an insight into non-farm payrolls on Friday, was broadly in line with expectations with private-sector payroll growth estimated at 216,000, from a revised 173,000 the previous month. The Dollar failed to gain a significant advantage, especially after reports that the Federal Reserve may consider some form of additional quantitative easing over the coming months.

Data Released

GER 11:00 Industrial Production (January)

U.K 12:00 BoE Interest Rate Announcement

EU 12:45 ECB Interest Rate Announcement

EU 13:30 ECB Press Conference Staff Economic Forecasts

U.S 13:30 Initial Jobless Claims (w/e 3rd March)

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