Pound Euro Exchange Rate Update: ECB Interest Rate Cut Sends GBP/EUR Skywards

Modified: Friday, 8 November 2013 09:53 BST - Written by John Cameron

STORY LINK Pound Euro Exchange Rate Update: ECB Interest Rate Cut Sends GBP/EUR Skywards

The European Central Bank’s rate cut sent the Pound Sterling to euro exchange rate (GBP EUR) through the roof. However, Pound Sterling euro was not the only pair to register strong gains on the day.

Yesterday’s dramatic decision by the European Central Bank to cut interest rates to a new record low of 0.25% had the initial effect of seriously weakening the single currency, sending the Pound euro exchange rate (GBP/EUR) all the way up to the middle part of the 1.2000s during the latter part of yesterday afternoon’s European equities session.

However, the unexpected action from the ECB had additional less predictable effects on some of the other sixteen most-actively traded global currencies. Investors surmised from the loosening of monetary policy by Europe’s central bank that all is not well with the world’s second most developed economy. This impression was added to by Mario Draghi’s assertion during his press conference which followed the announcement that mainland Europe’s economy remained susceptible to downside risks.

He backed this up when he suggested that the ECB’s key lending rate will remain at or below its current level for the foreseeable future. The suggestion that economic conditions are so bad in the eurozone economy that another interest rate cut, potentially leading to negative interest rates in the region, was a possibility served to spook investors, causing appetite for risk to drain from the global markets.

The dip in appetite for risk saw London’s FTSE 100 close down by 0.66% on the day, while the broad-ranging S&P 500 tumbled by over a percentage point as market participants shifted out of risk. The development hit the high-yielding Commodity Dollars hard, sending the Pound Australian Dollar exchange rate spiralling to above the 1.7000 GBP/AUD threshold for the first time in weeks, while the Pound New Zealand Dollar exchange rate moved to within striking distance of the 1.9400 GBP/NZD level having looked set to edge down into the 1.8000s during the early part of the day. Further gains are forecast for these Antipodean currency pairs if risk remains off the menu.

Relevant live Pound Sterling exchange rates (at time of publish): The Pound to Euro exchange rate (GBP/EUR) is currently trading down 0.13pct at 1.19828 GBP/EUR. The Pound to Australian Dollar exchange rate is trading down 0.1% at 1.69983 GBP/AUD. The Pound to New Zealand exchange rate is trading down 0.21% at 1.93032 GBP/NZD.

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