The British pound is moderately higher against the euro on Thursday as Sterling brushes off predictions of a UK rate cut later this month. The resilience of Sterling is despite broader euro-strength following the release of minutes from the last monetary policy meeting of the European Central Bank (ECB).
GBP/EUR was higher by 2 pips (-0.018%) to 1.1702 as of 1pm GMT, leaving the currency pair close to its highs for the week but in the middle of its 5-day price range.
Minutes released on Thursday offered details of the discussions held by policymakers at the last ECB meeting held in December 2019. The tone of the minutes was relatively hawkish on inflation, suggesting that ‘core’ inflation is rising. The bank has been emphasizing the ‘core’ inflation rate recently because it strips out more volatile swings in food and especially energy. Oil prices have swung wildly this year amid geopolitical tensions in the Middle East, which tends to create more ‘noise’ in the headline consumer price inflation figure.
The minutes noted that sentiment had improved since the thaw in relations between the US and China in their trade conflict but were more sanguine on the economic growth prospects of the Eurozone. Reference was made to the contraction in manufacturing saying, “the data is pointing to weak but stabilizing growth dynamics”.
Perhaps most positive of all for the euro was the description of the impact of central banks latest stimulus efforts as “conservative” and that the policy could be adjusted to reduce “unwanted side effects”. The implication here is that negative interest rates and the bond buy-buying program put in place under the watch of former ECB president Mario Draghi could be changed. The backdrop to these minutes at the ECB is that there was open rebellion by some policy makers about the decision to add to stimulus, which partly explains a “strategic review” currently being undertaken by new President Christine Lagarde.
The British pound continues to retrace recent losses despite recent data on the UK economy, including inflation missing market expectations. The losses began when Bank of England governor as well as other members of the Monetary Policy Committee started to openly discuss the prospect of an interest rate cut in the UK this year.