Pounds to EUR Exchange Rate Today - GBP EUR Drops To Lowest Level Since December Following ECB and BoE Decisions

January 13, 2012 - Written by John Cameron

STORY LINK Pounds to EUR Exchange Rate Today - GBP EUR Drops To Lowest Level Since December Following ECB and BoE Decisions

The Pound Euro exchange rate (GBP EUR) is 1.1943. The Pound Dollar exchange rate (GBP USD) is 1.5352. The Pound Australian Dollar exchange rate (GBP AUD) is 1.4825.

Yesterday’s session in the currency markets was dominated by a tale of two central bank meetings, as both the Bank of England and the European Central Bank announced their monetary policy stance for the coming month.

As expected, the status quo was maintained by both central banks, with the ECB maintaining its key lending rate at its current level of 1.00%, while the UK’s lender of the last resort opted to keep base rate on hold at a record low of 0.50%. Additionally, the Bank of England elected not to increase the £275bn currently allocated to its Quantitative Easing scheme.

On the face of it, yesterday’s inaction by Europe’s two leading central banks should have had no discernable effect on the GBP EUR exchange rate. However, the GBP EUR exchange rate lost significant ground in the wake of the dual announcements, trading down to 1.1938 early on in today’s session. This suggests that many investors had ‘priced in’ a surprise rate cut by the ECB and that this had held back the Euro in the first three sessions of this week. Once again, it was a case of the old market adage, ‘buy on the rumour, sell on the fact’, coming in to play.

New ECB President Mario Draghi’s comments in the press conference which followed the announcement, soothed investors, further improving sentiment towards Europe’s single currency. Draghi stressed that the ECB’s policy of ‘credit easing’ was a temporary measure and asserted that Europe’s central bank would work closely with the EFSF, (the region’s bailout fund), in order to resolve Europe’s debt crisis.

The Pound now appears to have convincingly rejected last week’s close of 1.2160 against the Euro. A close to this week’s session at below the key 1.2000 level would surely signify that a key reversal has taken place in this market.

Elsewhere, the fundamentals added further downside pressure to the GBP EUR rate during yesterday’s session, with UK industrial output and manufacturing output data for November, showing an unexpected contraction. Meanwhile, in the Eurozone, German inflation data showed that prices rose at an annualised 2.3% last year, up from 1.1% in 2010. The persistent tendency towards price increases in the Eurozone’s economic powerhouse could limit the ECB’s scope for future interest rate cuts.


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