The British pound is lower against the euro on Thursday.
Sterling had a kneejerk reaction higher to the Bank of England decision to keep interest rates on hold but had erased those gains by the afternoon.
There were two dissenters who voted for more quantitative easing (QE) program then BOE Governor Andrew Bailey told Bloomberg TV that more QE could be on the way in June, both of which added a more dovish feel to the Bank of England’s stance.
GBP/EUR was lower by 30 pips (-0.26%) to 1.401 as of 3pm GMT.
The currency pair spiked up to 1.147 but couldn’t even make it up to 1.15, with more sellers coming in ahead of the round number. Yesterday the exchange rate fell -0.36% leaving a small week-to-date gain of +0.23%.
GBP: Bank of England strength fleeting
The Bank of England kept rates at a record low of 0.1% and decided to keep its bond-buying program at current levels. Two dissenters voted for an extra £100 billion in quantitative easing and that seems the likely direction we are headed, but for now it’s a wait-and-see approach.
The decision from the German constitutional court blurs the future policy response from the ECB but as far as the Bank of England goes, with the UK behind on exiting lockdown and post-Brexit negotiations not going well, the bias appears to be for more stimulus.
EUR: ECB defiant against German court decision
A number of ECB governing council members (those who decide monetary policy) came out in defence of the central bank’s policies and the need for independence, rebutting the decision from the German court this week.
ECB Vice President de Guindos reiterated that ECB policy has provided crucial support to the economy and that accommodative policy will be necessary as inflation falls further in the next few months. He also pointedly said that fiscal actions are “the first line of defence.”
Reading between the lines, it seems the ECB is ready to defend its previous actions but central bankers believe they have done their bit and the next response should be from governments.
