Pound Euro Exchange Rate GBP/EUR Tumbles Today On ECB?s Draghi Comments

Modified: Thursday, 6 March 2014 19:23 BST - Written by Toni Johnson

STORY LINK Pound Euro Exchange Rate GBP/EUR Tumbles Today On ECB?s Draghi Comments

In the lead up to this afternoon’s European Central Bank (ECB) policy announcement, nine out of ten currency market analysts were expecting the euro US Dollar exchange rate to drop to 1.2800 EUR/USD. However, comments from ECB President Mario Draghi following the policy decision could change the minds of a few industry experts.

The Pound Sterling to Euro exchange rate is trading down -0.71% at 1.20853 GBP/EUR. The Euro to Pound Sterling exchange rate is trading up +0.71% at 0.82745 EUR/GBP.

Draghi’s post-decision press conference saw the top man at the eurozone’s central bank announce that it was slightly upping its growth forecast for this year from 1.1% to 1.2%, but it was the generally bullish tone of Draghi’s words which boosted the single currency so far this afternoon. The ECB President stated that downside inflation risks to the eurozone economy are now limited following an uptick in the latest CPI price rise numbers. Draghi went on to observe that data since the last policy meeting has by and large been positive and predicted that the moves which his Bank has taken to encourage a banking union in the euro area have shored up confidence.

Draghi's comment sees Pound to Euro plunge below 1.2100 GBP/EUR

Draghi’s words immediately sent the Pound euro exchange rate down below the 1.2100 GBP/EUR threshold, while the euro Dollar exchange rate spiralled to above the 1.3800 level, having sipped to close to the 1.3700 threshold earlier on EUR/USD. The forward move for the world’s leading currency pair, EUR USD, caused some attendant weakening of the Greenback which worked its way into the Pound US Dollar exchange rate via arbitrage funding GBP/USD. The outcome saw the GBP USD exchange rate head into the mid-1.6700s as institutional investors shifted back into euro-denominated assets.

The Bank of England had earlier announced that, to no-one’s surprise, it will be keeping base rate at its current record low of 0.50% for at least another month, while its asset purchase scheme will also remain at its current level of £375bn. The net effect was Sterling-neutral, and with no further tier one UK data releases for the remainder of this week’s session, the Pound’s relative performance against the other major global currencies is likely to be determined by movements for the EUR/USD exchange rate.

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