Pound Slips Against The Euro Following ECB And Bank Of England Policy Decisions

Published: Thursday, 4 October 2012 16:00 BST - Written by Minesh Chaudhari

STORY LINK Pound Slips Against The Euro Following ECB And Bank Of England Policy Decisions

Today’s central bank policy decisions have largely been damp squibs, with both the Bank of England and the European Central Bank opting to maintain their respective monetary policies as they are. The market’s instant reaction has been to send the GBP EUR exchange rate lower – the pair is currently trading at 1.2425. The move lower is indicative of two factors at play with GBP EUR; firstly, the fact that inaction was the chosen policy for both Central Banks, yet the euro is the currency which has strengthened in relative terms, suggests that investors had been pricing-in a higher percentage chance of a further loosening of policy by the ECB than by the Bank of England. Secondly, the support for the single currency hints that market participants have responded well to the tone of Mario Draghi’s rhetoric in his post-announcement press conference. Draghi assured investors that the ECB stands ready for any eventuality and provides a ‘fully effective backstop’ for the region’s numerous debt-troubled economies. However, the ECB President did add a note of caution when he observed that credit flows in some parts of the eurozone are currently non-existent.

Meanwhile, on the other side of the Atlantic, this afternoon’s Initial Jobless claims in the States came out slightly better than analysts had been anticipating at 367,000, providing room for optimism that tomorrow afternoon’s US Non-Farm Payrolls data for September will show a pronounced bounce following September’s disappointing print. The Buck has given up a little ground against Sterling so far today, as investors price-in the possibility that tonight’s Fed Minutes will reveal that the US central bank’s policy committee considered a tranche of more than the US$40bn per month which they decided on for QE3. We shall know more later.

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