The Pound to Euro Exchange Rate has fallen to a 10-week low this morning as yesterday’s Bank of England Minutes report still weighs heavily on Sterling. The MPC voted 7-2 in favour of a £50 billion increase in asset purchases. Many had predicted resistance among the committee members to further quantitative easing, but the 2 rebel votes were actually in favour of an even larger boost to the asset purchasing scheme.
Markets reacted harshly to the Pound following the Minutes report, they saw the threat of further QE as a sign that the UK economy is still underperforming and decided to sell Sterling across the board. The Pound Exchange Rate fell dramatically against all of the majors – it performed best against the New Zealand Dollar where it only lost -0.25%.
Strong German IFO stats today helped maintain the weak Pound to Euro Exchange Rate, which currently stands at 1.180 (10:32 GMT). The IFO measures the sentiment of over 7,000 enterprises in Germany and their short-term business plans. All 3 sentiments this month ranked over the benchmark of 100 – anything above 100 shows an improvement in sentiment whilst anything below shows a negative outlook.
Business Climate IFO increased from 108.3 to 109.6. Current Assessment IFO grew by 1.2 points from 116.3 to 117.5. Expectations IFO improved by 1.4 points from 100.9 to 102.3.
The results help alleviate fears that Germany could be heading into contraction, but the Eurozone still could be. Today’s European Commission forecast predicts the Eurozone will shrink by 0.3% this year.
Euro scepticism has yet to sink in to the markets and as such the Euro is still riding a wave of glory partly inspired by Greece’s bailout package being secured at the beginning of the week. But the widely reported facts surrounding the debt deal all point to further complications down the line. Greece has bought itself some time, but civil unrest and political dissidence could hijack the IMF-imposed austerity measures come April’s general elections.
If you are looking to convert Euros to Pounds now could be a very good time, as the Pound to Euro Exchange Rate is likely to strengthen as the year goes on. When markets take notice of the glaring holes in Greece’s contingency plans, or when markets are forced into taking notice, the Pound will rally and could push the bar towards the 1.25-1.30 mark.
