Pound Sterling Euro Exchange Rate Forecast to Break Through 1.4257 GBP EUR Multi-Year High

May 21, 2015 - Written by John Cameron

STORY LINK Pound Sterling Euro Exchange Rate Forecast to Break Through 1.4257 GBP EUR Multi-Year High

This morning’s minutes of this month’s Bank of England (BoE) monetary policy committee meeting were generally helpful to the Pound Sterling (currency:GBP).

The Pound euro exchange rate broke back into the 1.4000s GBP EUR during late trading this afternoon following sustained support for Sterling. Although the memos of the BoE’s latest get-together revealed that, once again, all nine members of the MPC had voted unanimously in favour of keeping UK interest rates on hold at their current record low of 0.50%, the notes were judged to be positive in tone. The positive effect of the minutes was partially driven by the fact that two of the nine members had judged this decision to be ‘finely balanced’, suggesting that they may be quick to vote ‘yes’ to a rate hike once domestic prices begin rising once more.

The Bank laid the blame for the dramatic slump of the British economy into deflation last month firmly at the door of global forces, noting that,

‘Around three quarters, or 1.5 percentage points, of the 2.0 percentage point deviation of inflation from the 2.0% target in March had been related to unusually low contributions from movements in energy, food and other goods prices. Despite a recovery from its trough in January, the sterling price of crude oil had been 44% lower in March than in the middle of 2014.’

This sentiment, combined with BoE Governor Mark Carney’s assertion earlier in the week that UK householders should enjoy low inflation deflation while it lasts, as price rises will move towards the government’s target of 2.0% during the final stages of this year, is forecast to support the Pound into the medium term.

Meanwhile, yesterday’s confirmation from a European Central Bank policymaker that his institution has chosen to increase the pace of its bond purchases during May and June as part of its Quantitative Easing programme, has held back the euro (currency:EUR) on the day. Many commentators now predict that the GBP EUR exchange rate will break to a fresh multi-year high above 1.4257 sooner rather than later.

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