Pound Euro Exchange Rate Could Head Higher Following Bank of England Decision to Keep QE On Hold

Published: Friday, 11 May 2012 09:00 BST - Written by Minesh Chaudhari

STORY LINK Pound Euro Exchange Rate Could Head Higher Following Bank of England Decision to Keep QE On Hold

Sterling received a significant boost in the middle part of yesterday’s session, as the Bank of England announced that it would not be altering the UK’s monetary policy. The gains which followed the statement suggested that a significant proportion of market participants had been factoring-in an extension to the Bank’s existing £325bn Quantitative Easing scheme. The factor which tipped the balance against an increase to the programme may well have been the most recent UK CPI inflation figures which suggested that British price rises are on increasing at an accelerated pace once again. It has been widely acknowledged that the Bank’s asset purchase scheme has been a key contributor to domestic price inflation, which has persistently remained above the government’s target of 2.0%.

There was further good news for the Pound in the latter part of yesterday’s European session, with the release of the latest NIESR UK GDP estimate, which predicted that the British economy has returned to growth in the last three months. The closely-watched figure showed a slight increase of 0.1% over the period in question, suggesting that the UK economy’s return to recession in the first quarter of 2012 will prove short-lived.

Looking ahead to today’s session, this morning’s EC forecast for economic growth in the eurozone is likely to have a strong bearing on the prospects of the single currency for the remainder of the week’s session. Recent economic indicators from the region have hinted that stringent austerity measures in several European states are starting to affect the economic well-being of the whole of Europe. If the EC does slash its growth forecasts, then expect the euro to dramatically weaken, taking the GBP EUR exchange rate higher again, following yesterday’s break towards the key psychological 1.2500 level.

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