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Pound Sterling to Euro Exchange Rate Boosted by Poll Shows Scots Favour Staying in UK

September 12, 2014 - Written by Tim Boyer

The Pound Sterling to Euro currency exchange rate pairing has seen volatility on the exchange rate markets this week.

The GBP/EUR trended higher on Friday as the Scottish ‘Yes’ vote for independence slid in the most recent YouGov poll.

The Scottish referendum, due to take place on the 18th September, will continue to place downward pressure on Sterling as the prospect of Scotland leaving the UK could cause severe disruptions to the currency.

Meanwhile, in the Euro area the European Central Bank (ECB) has suggested that government policies may need to become more relaxed regarding loans in order to see the Eurozone economy expand.

- The Euro to Australian Dollar exchange rate is trading up +0.77% at 1.43157 EUR/AUD.
- The Euro to Canadian Dollar exchange rate is trading up +0.66% at 1.43581 EUR/CAD.
- The Euro to Pound Sterling exchange rate is trading up +0.13% at 0.79636 EUR/GBP.
- The Euro to New Zealand Dollar exchange rate is trading up +0.61% at 1.58900 EUR/NZD.
- The Euro to US Dollar exchange rate is trading up +0.17% at 1.29440 EUR/USD.

Euro Exchange Rate Affected by Draghi Speech Encouraging Lending

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European Central Bank President Mario Draghi has stressed that strong governments within the Eurozone economy will need to assist the recovery by implementing leniency toward lenders seeking small business loans. Last week Draghi cut interest rates to their lowest ever level at 0.05%, another move in his radical attempts to kick-start the economic recovery. Draghi stated: ‘If we don’t manage to get investment going again, we will weaken the economy in the short run and undermine its prospects in the long run.’

Draghi also commented that some rules should be by-passed by governments in an attempt to encourage optimism and business development in the Eurozone. ‘In many cases, these obstacles sap entrepreneurial spirits, especially of young, innovative firms that create most of the new jobs and that are highly sensitive to changes in investment opportunities.’

The Eurozone could be set to suffer further as Russia retaliates to additional sanctions put in place by both the EU and US. Russia is currently discussing the potential of banning clothing and used cars. Foreign Ministry representative Alexander Lukashevich commented on the sanctions, stating that Russia’s response would be an: ‘unfriendly policy which doesn’t meet the EU’s interests.’

Pound Rate Gains Today as Scottish Referendum ‘No’ Vote Rises

Meanwhile, the Pound has seen severe fluctuations of late as a result of the pressure of the upcoming Scottish referendum. Thursday evening saw Sterling gain against other majors as the most recent YouGov poll showed that 52% of Scots are now in favour of remaining within the UK. The Pound plummeted last week on the news that the number of Scots wanting to break from the UK outweighed those who didn’t, with the ‘Yes’ camp holding 51% of the vote. If Scotland does decide to leave the UK, economists have forecast the Pound could depreciate by an estimated 15%.

Furthermore, some retailers have warned that price increases will be prominent in Scotland if they do break away. Businesses such as John Lewis, ASDA, Timpson, and B&Q backers Kingfisher, are among the many that are supporting the ‘No’ vote. Whilst Scottish First Minister Alex Salmond comments that the referendum is a ‘process of national empowerment’, the Bank of England (BoE) has warned about the dangers of Scotland leaving the UK. Salmond has remained insistent that an independent Scotland could keep Sterling but Governor of the BoE Mark Carney has stated that Scotland would need to place a tax increase of £18,000 per head to maintain the currency.

In other news, Friday has seen the Eurozone Industrial Production figures exceed forecasts in July, rising by 2.2% on a year-on-year basis and 1% on the month. Meanwhile UK Construction Output slumped at only 2.6% in July year-on-year, despite economists predicting a 3.2% increase. With no more data publications scheduled for either the UK or Eurozone for the remainder of the week, any further developments in geopolitical tensions or Scottish independence will be catalysts for fluctuation in the Pound to Euro exchange rate.

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