Euro versus Sterling – 10th April 2011 – Status Quo

Euro10th April 2011 – Euro versus Sterling, the current Status Quo.

In a move that had been widely anticipated since their March meeting, The European Central Bank (ECB) announced on Thursday that the Governing Council had voted to raise the key benchmark interest rate from 1 percent to 1.25 percent. As the ECB looks to drain liquidity from the market, following unprecedented stimulus measures over the past few years in order to prop up growth following the recession, the rate hike may indeed be considered a move back towards normality or is it simply a status quo situation? The hike had almost totally been factored-in to the markets before the announcement and so failed to strengthen the Euro as some might have previously suspected would have happened. The hike, aimed at curbing inflation, could spell trouble for weaker economies in the Eurozone which desperately need to encourage growth. All eyes will now turn to next month’s meeting. Looking into the future, Jean-Claude Trichet indicated at an ECB news conference that more euro zone rate rises were in store.

Latest Euro Pound Exchange Rate Graph – 10th April 2011

Latest Euro Pound Exchange Rate Graph

The Bank of England (BoE) contrastingly decided against raising its key interest rate, maintaining its current 0.5 percent rate. Whilst The BoE had been widely expected to hold rates for a consecutive 25th month, their decision was bolstered by the release of weak manufacturing figures earlier in the week. The majority of voting members emphasised the need for more evidence on the strength of the economic recovery before changing their stance. Most onlookers see a diminishing chance of a rate hike in May. The policy meeting minutes are likely show another 6-3 split within the Monetary Policy Committee (MPC) – however, it is worth considering that a growing shift within the committee could stimulate a bullish reaction in the British Pound as investors wait for the central bank to steadily normalize monetary policy in the short term. The details of the voting pattern and the debate among BoE policymakers will not be made public until the minutes are released in around two weeks’ time.

In response to Portugal’s request for financial assistance, European Union Monetary Affairs Commissioner Olli Rehn said that the bailout package is likely to reach EUR 80 Billion. It is felt that the Portuguese face an uphill battle to meet its debt obligations due up in June as the government faces rising financing costs. Mounting fears that Spain will be the next country to file for a euro bailout has had implications on keeping the euro weak. On a more positive note for the Euro, the single currency rallied to an unprecedented yearly high on Friday on the back of an improved outlook for future growth. The Euro currency may continue to strengthen over the near-term as the European Central Bank shows an increased readiness to tighten monetary policy further this year. So in summary, Sterling-Euro rates remain low and may well do so for some time, the current status quo.

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