The Euro to Pound Sterling (EUR/GBP) exchange rate weakened to its lowest level in a month on Wednesday as worries over a Greek default weighed on the single currency and the latest Bank of England minutes hinted that UK interest rates could rise sooner than previously forecast.
The Euro to Pound Sterling (EUR/GBP) Exchange Rate Weakened To a Session Low of 0.7120
The Pound advanced by more than 0.90% against the Euro and made solid gains against other major peers including the US Dollar (USD) as the minutes from the BoE’s April policy meeting showed that policy makers believe that inflation might recover more quickly than previously expected. Rising inflation would be a prerequisite for the bank to hike interest rates.
The minutes showed that policy makers voted unanimously to leave rates unchanged at the record low level of 0.5%. Two of the Monetary Policy Committee (MPC) members however were shown to have said that their decision was ‘finely balanced’.
Consumer price inflation (CPI) is expected to turn negative at some point in the coming months according to the minutes, but the impact of the strength of the Pound could be feeding through more quickly into CPI than expected. That could mean less downward pressure on prices to come and a faster pick-up in inflation when the effects of recent falls in energy and food prices drop out of the annual comparison.
‘This appears to be a mildly more hawkish assessment from the Bank of England, with two MPC members regarding the decision as ‘finely balanced’ as to whether to tighten policy. Were it not for election uncertainty, we think that the market would be more convincingly looking for a rate rise this year. Should the election proceed smoothly then we suspect a November move remains a distinct possibility,’ said James Knightley from ING Bank.
Euro to US Dollar (EUR/USD) Exchange Rate Softens on US Housing Data
The Euro to US Dollar exchange rate softened on Wednesday as Eurozone Consumer Confidence was shown to have fallen from -3.7 to -4.6 in April.
Data out of the USA supported the US Dollar as it showed that existing home sales surged more than expected in March. Sales rose from a revised figure of 4.89 million to 5.19 million, month on month sales rose by 6.10%.
‘Purchase applications increased for the fourth time in five weeks as we proceed further into the spring home buying season. Applications for FHA purchase loans remained strong as well,’ said Mike Fratantoni, chief economist for the Mortgage Bankers Association.
Mortgage applications increased by 2.3% to wipe out the -2.3% decline recorded in the preceding month.