Pound Sterling to Euro Exchange Rate softens as BoE keeps interest rates and QE unchanged

In an expected move, the Bank of England kept interest rates unchanged at the record low level of 0.5%, and kept its asset purchasing programme on hold at £375 billion.

The move did little to support the Pound after the currency eased from the week’s earlier highs. The decision to keep interest rates at the record low level of 0.5% had been forecast by the vast majority of economists. The rate has not been altered since March 2009.

Despite another move of nothing new occurring economists maintain that they expect the BoE will be the first major Central Bank to increase interest rates as the UK economy continues to perform well.

The BoE’s forward guidance policy means that the Bank will not consider raising rates until unemployment falls to 7%, currently the rate is at 7.2%. Economists expect the Bank to raise rates by 25 basis points by May 2015 as the economy improves and as unemployment falls.

A recent fall in the rate of inflation has also reduced any pressure on the Bank’s monetary policy committee to raise interest rates. The UK’s inflation rate fell to 1.7% last month, which was a four-year low and below the Bank’s target of 2%.

“For now, with the economy growing respectably but not roaring away, we see it likelier than not that the MPC will avoid tightening policy this year, especially with inflation expected to remain below target over the medium term,” said the chief economist at Investec.

The Euro meanwhile found support from news that Greece made a successful return to the financial markets. The austerity hit nation managed to raise around €3 billion in its first bond sale for four years.

The single currency also climbed against the US Dollar after the Federal Reserve’s policy meeting minutes for March suggested that an interest rate rise would not be likely for some time.

If Friday’s German inflation comes in below expectations we can expect the single currency to go back onto the back foot. Weaker than expected inflation figures out of a number of Eurozone nations were released today, putting further pressure upon the European Central Bank to take action to tackle the threat of deflation.