Foreign Exchange Insight : GBP EUR Rate Gains on Trichet?s Comments

June 10, 2011 - Written by John Cameron

STORY LINK Foreign Exchange Insight : GBP EUR Rate Gains on Trichet?s Comments

The Pound Euro exchange rate (GBP EUR) is 1.1260. The Pound Dollar exchange rate (GBP USD) is 1.6314. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5399.

Both the Bank of England and the European Central Bank announced yesterday that they had elected to maintain their current central bank lending rates at 0.5% and 1.25% respectively, as had widely been anticipated. However, ECB President Jean-Claude Trichet stole the headlines with comments that he made in his post-announcement press conference.

Trichet dropped heavy hints that the ECB would raise interest rates at July’s meeting, as he called for ‘strong vigilance’ on Eurozone price rises. Trichet went on to observe that there had been, ‘continued upward pressure on overall inflation,’ in the previous four weeks and that, ‘the most recent data confirms the positive underlying momentum of economic activity in the euro area.’

However, on a less Euro-positive note, Trichet noted that the Euro zone’s ‘overall monetary policy stance remains accommodative,’ and he went on to stress the need for interest rates to be set at levels which would promote growth in peripheral Eurozone states including Portugal and Greece.

Trichet also found time to re-visit a theme of May’s press conference when he stated that the global economy needed a strong US Dollar in order to promote growth. With the EUR USD pair accounting for the majority of the volume traded in the currency markets on a daily basis, the easiest way for Trichet to promote a strong Dollar would be to persistently talk the Euro down. The market therefore took these comments as being Euro-negative in tone.

The net effect of the decision and Trichet’s press conference was to weaken the Euro, with the EUR USD rate falling from 1.4618 at 1300hrs BST to trade below 1.4500 just over an hour later. The GBP EUR pair saw a similar move against the Euro, trading from 1.1237 to above 1.1300 over the same time period.

However, it is possible that there will be delayed support for the Euro in the markets over coming sessions as Trichet’s comment that the ECB is ‘in a mode where there might be, in the next meeting, an increase of rates,’ rings in their ears.


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