Euro to Pound Sterling (EUR/GBP) Exchange Rate at 3-week high – Euro to USD stronger

The Euro to Pound exchange rate rallied on Wednesday to push upwards to its best level in three-weeks and also made gains against the US Dollar as investors look ahead to tonight’s US Federal Reserve Policy meeting decision.

The single currency made gains against Sterling as today’s Bank of England policy meeting minute’s disappointed economists by coming in more dovish than expected.

The minutes also muted expectations for a UK interest rate increase before the end of the year.

Investors were disappointed as the minutes showed that policy committee members voted unanimously to leave interest rates unchanged at the record low level of 0.5% this month.

The markets had been expecting to see some difference of opinion between policy makers.

Also denting sentiment towards the Pound was the minutes mention that an interest rate rise before the end of the year depends on inflation and wage growth.

Yesterday’s weaker than expected UK inflation figures and recent data which showed that wage growth remains below inflation lowered the likelihood of a rate rise.

“On the one hand, output growth had been stronger, and unemployment had fallen faster, than had been anticipated by the MPC and most other forecasters. On the other hand, wage growth and inflation had been weaker,” the minutes said.

Today’s Euro gains against the US Dollar are likely to be short-lived if the Federal Reserve policy statement is hawkish towards an interest rate rise.

Following yesterday’s better than forecast inflation data expectations are high that the Fed will paint a more optimistic picture of the US economy.

“If the Fed turns a little bit more hawkish today, that will help the Dollar. We are not sure if this is the time for an uptrend in the Dollar yet. Probably we think more likely toward the end of the third quarter as stimulus nears the end,” said a foreign exchange strategist at Societe Generale SA.

Euro Exchange Rates