Pound to euro exchange rate kicked higher as BoE MPC decision combines with PMI figures to form strong catalyst

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Published on Thursday, 07 June 2012 11:39

Written by Sam Coventry

"Sterling should be able to bounce from the current €1.23 level" - Richard Driver, Caxton FX.

The pound to euro exchange rate is 0.4pct up on yesterday; GBP-EUR is at 1.2365 after commencing the day's trade near one-month lows. (We have published the latest investment bank FX forecasts at our IMT site, we grant free access via our Facebook portal).

Two occurrences have proven to be the catalyst that pound sterling needed:



1) The Bank of England's Monetary Policy Committee has decided to hold interest rates at current levels, and declined to extended the money printing programme known as quantitative easing.

2) Earlier, the latest service sector PMI data came out. The headline activity index for the latest Markit/Cips purchasing managers’ survey read 53.3 for May, the same as in April and above expectations for a dip to 52.5.

As mentioned, analysts and currency market players had been expecting a poor outcome.

Ahead of the release, Richard Driver at Caxton FX said:

"Today’s session brings the UK services sector growth figure, which is expected to show another decline. Meanwhile Spain and France are auctioning 10-year debt so all eyes will be on bond yields. No change is expected from the BoE today, so sterling should be able to bounce from the current €1.23 level."

The pound to US dollar is 0.34 pct up at 1.5550.

Sterling was well-supported against the US dollar, helped by much improved risk appetite.

Market sentiment was given a lift yesterday by reports of a rescue for Spain’s banks.

Meanwhile there were hints that the Fed is edging towards QE3.

Yesterday’s inaction from the ECB may well have eased the pressure on the BoE to ease policy further at today’s meeting. Unchanged policy will be good for the pound.

"The increased market optimism that characterised yesterday looks unlikely to last and we continue to target lower levels. This pair trades at $1.5450," says Driver.