Before the Bank of England delivered its rate decision the Pound was close to a two-year high against the US Dollar but had eased away from an almost one-month high against the Euro.
In spite of Sterling receiving underlying support from the UK’s brightening economic outlook, the British asset lost ground against its common currency rival as the Euro was hoisted by surprisingly strong economic confidence figures for the Eurozone.
A better-than-forecast increase in German industrial production also hinted at a positive end to 2013 for the Eurozone’s largest economy.
While the Pound later benefited from the news that Britain’s good trade deficit narrowed as exports to the European Union surged by 4.8 per cent, movement was limited ahead of the Bank of England’s rate decision.
As expected by economists the BoE opted to leave rates unaltered and the level of asset purchases unchanged.
The GBP/EUR pairing was little affected
As observed by a Credit Agricole currency strategist, ‘We still don’t see the first rate hike until the end of next year. Everyone has their balance of risks on earlier tightening. We still think Sterling rallies against the Euro, but not against the Dollar.’
So while the trend might be for GBP/EUR strength, the GBP/USD pairing may see a reversal.
Last year the BoE intimated that interest rates would remain at record lows until the unemployment rate fell to at least 7 per cent.
But since then unemployment has been dropping more rapidly than anyone expected and the UK has enjoyed the fastest pace of growth since 2010.
Although the BoE has backtracked a little by insisting that interest rates won’t rise until at least 2015, some industry experts believe the central bank may have to revise that decision.
While analysts with Goldman Sachs envisage policy being reviewed by the summer, economist Philip Shaw was less bullish; ‘Over the past couple of months you’ve seen a rising risk of an early hike. It’s not impossible you get something towards the end of this year, but the focus is still likely for the time being to be on using guidance to promote the recovery.’
While some GBP/EUR movement may occur in the wake of the European Central Bank’s rate decision, investors will also be looking to tomorrow’s UK construction/industrial/manufacturing reports.
The pace of output in the manufacturing and industrial sectors is expected to have slowed in November.
Of course, the highly influential US non-farm payrolls report will also be of interest before the weekend.
Current Pound Sterling (GBP) Exchange Rates:
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The Pound Sterling/US Dollar Exchange Rate is currently in the region of: 1.6451 >
The Pound Sterling/Euro Exchange Rate is currently in the region of: 1.2103 <
The Pound Sterling/Australian Dollar Exchange Rate is currently in the region of: 1.8536 >
The Pound Sterling/New Zealand Dollar Exchange Rate is currently in the region of: 1.9919 >
The US Dollar/Pound Sterling Exchange Rate is currently in the region of: 0.6077 <
The Euro/Pound Sterling Exchange Rate is currently in the region of: 0.8262 >
The Australian Dollar/Pound Sterling Exchange Rate is currently in the region of: 0.5396 <
The New Zealand Dollar/Pound Sterling Exchange Rate is currently in the region of: 0.5017 <
(As of 12:45 GMT)
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