Sterling To Euro Rate Drops Following ECB President?s Comments

Published: Thursday, 7 June 2012 09:00 BST - Written by Minesh Chaudhari

STORY LINK Sterling To Euro Rate Drops Following ECB President?s Comments

Yesterday’s session in the currency markets was shaped by the words of one key global policy-maker – European Central Bank President Mario Draghi. Previous ECB Presidents have become renowned for their conservative approach to public commentary, however Draghi bucked this trend with his words of yesterday. As anticipated, the ECB elected to maintain interest rates at their current level of 1.0%, but Draghi’s assertion in his post-announcement press conference, that the decision had not been unanimous, and that several ECB board members had called for a surprise cut in rates in order to promote growth in the eurozone, provoked a pronounced reaction amongst currency market participants. The revelation led to speculation amongst investors that the ECB had considered further drastic measures, including further ‘credit easing’, in a response to the slowdown in economic activity which has seen no overall eurozone GDP growth in the first three calendar months of this year.

As market whispers suggesting that the ECB was considering a ‘kitchen sink’ approach to Europe’s debt crisis gathered momentum, the euro gained increasing support in the market. This saw the GBP EUR exchange rate tumble to 1.2306 overnight, providing further evidence that mid-May’s multi-year high of 1.2578 will be tough to beat moving forward.

Further pressure was heaped on the GBP EUR exchange rate in the early part of yesterday’s session with the release of a disappointing UK PMI Construction survey for May, which revealed that growth in this key sector of the British economy is contracting. It appears unlikely that the UK economy will be able to ‘build it’s way’ out of the recession in which it currently languishes.

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