British pound sterling: UK currency weakens against an expectant EUR as all eyes are fixed across the channel

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Published on Thursday, 06 September 2012 08:34

Written by Sam Coventry

The pound sterling (Currency:GBP) is largely expected to be unaffected by the Bank of England which will hold its regular policy meeting this lunchtime. Markets are expecting no changes in rates or the amount of quantitative easing, particularly following the manufacturing and services data this week.

What we are saying then is that sterling direction will be driven by external factors, particularly in the Eurozone.

A look at the spot rates shows the pound euro exchange rate to be 0.16 pct in the red at 1.2603.


The pound dollar exchange rate is 0.05 pct higher at 1.5908.

"The Pound weakened towards 1.5850 against the U.S Dollar on Wednesday before recovering through the course of the day, as the U.S currency came under additional selling pressure," says Adam Solomon at TorFX.

There were no major domestic economic reports released in the UK yesterday following the early PMI services sector release.

The PMI data continued to trigger some improvement in sentiment towards the Pound.

"Therefore, the Pound is likely to be buffeted by Euro-zone policy announcements with the ECB expected to cut interest rates by 25 basis points and announce a program to purchase bonds in order to restore confidence in the outlook," says Solomon.

The Euro initially retreated towards 1.25 against the U.S Dollar, after the latest Euro-zone PMI index remained weak, which unsettled the Euro to a degree amid further concerns surrounding the German growth outlook for 2013.

There was a number of leaked reports surrounding the potential ECB bond purchasing program, which is set to be announced this afternoon and could have a significant impact on market sentiment.