Pound Euro Exchange Rate Hangs On BoE And ECB Monetary Policy Decisions

Modified: Wednesday, 3 April 2013 17:59 BST - Written by Ben Hughes

STORY LINK Pound Euro Exchange Rate Hangs On BoE And ECB Monetary Policy Decisions

Another day, another IMF-backed bailout. Yesterday’s session in the markets brought the news that representatives from the International Monetary Fund were in Cairo hammering out the details of an emergency loan reported to be worth £3.2bn to the debt-burdened Mediterranean state. It appears likely that Egypt, in common with other nations that have accepted IMF-backed assistance, will be forced to impose swingeing government cuts and domestic tax rises in order to qualify for the money.

In truth, Egypt’s circumstances are very specific; the nation remains riven with political divisions which have been accentuated by last year’s ‘Arab Spring’. A historically weak Egyptian Pound which has resulted from the social turmoil which followed has caused domestic inflation, adding to the unrest. The situation provides a salutary lesson for nations which have been jostling to competitively weaken their currencies in an effort to boost their exports and price foreign imports out of their home market. Whilst an increase in output is almost always a positive for an economy, the attendant price pressures which a weak currency can cause is apt to trigger tensions as economic participants living on fixed incomes struggle to make ends meet and workers lobby for better wage deals with their employers.

Elsewhere, investors’ focus today falls on the Bank of England and European Central Bank monetary policy announcement. There remains a live chance that the UK’s central bank will opt to increase its £375bn Quantitative Easing policy later today – the only factor stopping them from doing this would appear to be creeping British price rises. If more QE for Britain is announced later today, then the Pound will suffer pronounced losses against the other major global currencies.

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