Pound Sterling to Euro (GBP/EUR) Exchange Rate falls below 1.20 mark after ECB eases deflation fears

The Pound declined under the 1.20 mark against the Euro for the first time since the start of 2014 after the European Central Bank chose to maintain interest rates at the record low level of 0.5% and refrained from announcing any new stimulus measures.

The Euro reversed its earlier decline after ECB President Mario Draghi said that the risk from upside and downside inflation remained limited, easing investor concerns. Draghi said at the press conference which followed the rate announcement that the Bank has not seen any sign of falling investment which would suggest that people were expecting deflation.

Draghi firmly reiterated the ECB’s forward guidance, saying that rates will maintain at their current record levels, or lower, for an extended period, and said the bank could take further decisive action if necessary.
He also said domestic demand should improve, while survey data indicated that the recovery in the euro zone was continuing. Risks to recovery remain on the downside, he said, adding that uncertainties in emerging markets could affect future economic conditions.

Earlier in the session the Bank of England kept rates at the record low level of 0.5%. The Bank’s Monetary Policy Committee (MPC) chose to maintain the Bank’s £375 billion quantitative easing programme. No press statement was released. Now markets will focus on next week’s quarterly inflation report due for release next Wednesday.

Against the US Dollar the Euro strengthened for a second day and gained a whole cent after data out of the world’s largest economy showed that the USA’s trade deficit widened more than expected in December as exports ended a record breaking 2013 on a soft note.