GBP EUR Gains Forecast For Pound Sterling Euro Exchange Rate On ECB Interest Rate Decision

May 30, 2014 - Written by James Fuller

STORY LINK GBP EUR Gains Forecast For Pound Sterling Euro Exchange Rate On ECB Interest Rate Decision

Weaker than anticipated German Retail Sales numbers for April and a below-expectations set of Italian Consumer Price Index numbers have held back the euro (currency:EUR) today. The upshot saw the Pound euro exchange rate (GBP/EUR) break back above the 1.2300 threshold earlier on.

The single currency remains highly susceptible to any indication that price rises in continental Europe may be about to drop into negative territory; European Central Bank President Mario Draghi has warned of the decimating effect which a bout of deflation would have on economic activity in the eurozone, so the Italian inflation numbers were particularly damaging.

Meanwhile, official figures from the Land Registry, published earlier, revealed that the average property price in England and Wales had risen by 6.7% during the twelve months to April. As has unanimously been the case with recent UK house price gauges, London led the way, with an annualised increase of 17%. At the other end of the nation, prices in the North East increased by a markedly more modest 2.9%, illustrating the severe divergences which are currently at play in the British property market. The figures were considered by analysts to be generally supportive to the Pound.

Next week’s session is likely to be a key one for the Pound Sterling euro exchange rate (GBP/EUR) with a widely-trailed alteration in policy expected from the European Central Bank on Thursday. Comments from European Central Bank President Mario Draghi at the start of this week suggesting that ‘pre-emptive action’ may be needed in order to steer the eurozone economy away from deflation has heightened investors’ expectations regarding a raft of interest rate cuts for mainland Europe.

The consensus amongst economists is that the ECB will trim its key lending rate from its current 0.25% to 0.10% and that Europe’s central bank will take the dramatic step of introducing a negative deposit facility rate in order to encourage the region’s retail banks to get lending to individuals and SMEs once more.

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