The Pound to Euro Exchange Rate grew by 1.0% yesterday – the most in 4 months – amid a flurry of currency news announcements that favoured Sterling and the US Dollar over the Euro. The European Central Bank continued their Long Term Refinancing Operation (LTRO) in an attempt to boost liquidity by giving out €529 billion of cheap 3-year loans. The loans were snapped up by over 800 banks, which appeared to spook Euro investors into selling the single currency. The large number of banks eager to take the ECB handouts suggests economic instability in the Eurozone. Conversely, the prospect of improved liquidity points towards higher financial sector earnings in the city of London and could help the UK avoid technical recession this quarter. The Pound to Euro Exchange Rate grew to 1.194.
The ECB loans were viewed by some investors as an indirect form of Quantitative Easing; the last bout of cheap loans resulted in a drastic improvement in sovereign bond yields, especially in the southern Euro member states. Bank of England governor Mervyn King seemed to corroborate this idea when he stated that small businesses remained unaffected by the loans because they were primarily being used to shore up the banks. The Pound and the US Dollar have both suffered at the hands of QE and the devaluation of the Euro has had the same effect on the single currency.
UK ecostats fuelled the Pound’s Sterling performance yesterday with Consumer Confidence maintaining its strongest level since June. Mortgage Approvals increased by the most in 2 years and the Bank of England expanded Money Supply growth in the latest data release.
As the Eurozone felt the pressures of a veritable form of Quantitative Easing, the Bank of England made some announcements to suggest that their asset purchasing scheme could have reached its limit. Martin Weale of the Monetary Policy Committee commented that further QE is unlikely as rising oil prices, and seasonal adjustments should keep target inflation rates from being missed.
