Grim ECB Monthly Report Sees GBP EUR Rate Edge Higher

December 13, 2012 - Written by David Woodsmith

STORY LINK Grim ECB Monthly Report Sees GBP EUR Rate Edge Higher

The euro enjoyed strong support during early trading today thanks to the announcement that the eurozone’s Finance Ministers had reached an accord on changing the structure of how the region’s retail banking sector is overseen. The eurogroup revealed that the European Central Bank will take over regulation of Europe’s banks – a substantial proportion of which are thought to have highly distressed balance sheets. The move served to reassure institutional investors holding euro-denominated assets, who now feel secure in the knowledge that the euro area’s leading financial institution is responsible for the euroland’s retail banks.

The news propelled the GBP EUR exchange rate down to 1.2322, which put the pair within spitting distance of October’s 7-month low of 1.2247. However, the latest ECB Monthly Report, published a little later this morning, triggered a mini-reversal for GBP EUR. The publication was resolutely downbeat, predicting that economic activity in the eurozone would not start to pick up until late next year. The report went on to posit that inflation drop below 2.0% in 2013, giving the ECB free rein to further loosen it monetary policy.

GBP EUR reversed following the ECB’s report, edging back towards the 1.2360 level once more. Tomorrow morning’s whole of eurozone CPI inflation data for last month which will provide investors with further information regarding the ECB’s interest rate policy in the near-term. A showing of above the anticipated 2.2% level for the closely-watched figure would suggest that Europe’s central bank may not have the leeway to trim rates again until well into 2013. Such an outcome could send GBP EUR back down towards its key level of support at 1.2247.

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