Pound to Euro | Pound Euro Exchange Rate News and Insights

Pound euro exchange rates given boost as markets turn bearish and MPC member offers cooling tone on February QE

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Category: Pound to Euro

Published on Monday, 30 January 2012 14:01

Written by Sam Coventry

The pound euro exchange rate is 0.63% higher at 1.1968. The exchange rate is quickly recovering ground lost last week as markets turn bearish.

In addition, the British pound has benefited against the euro from signs that a February increase in quantitative easing (QE) at the Bank of England is not set in stone.

Increasing the supply of currency, as is the case with QE, is typically a bearish scenario for the currency in question.

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The MPC minutes published this week suggested that the MPC members are split on the necessity of additional QE.

Barclays economists continue to expect the MPC to announce additional QE at next meeting on February 9, but the amount to be £50bn, rather than £75bn.

The PMI numbers next week will be an important input for the MPC decision and worth attention as GBP-specific risk events.

In an interview with Reuters, MPC member David Miles said that the BoE's long-standing forecast that inflation would peak in late 2011 and fall sharply thereafter looked likely to be vindicated in light of recent data.

In Mr Miles's view, it was highly likely that inflation would continue to fall towards the target level (and possibly even below) as there was a substantial degree of spare capacity in the economy.

Notwithstanding this, Mr Miles said it would be wrong to assume that more QE was a certainty.

Touching upon the growth issue, Miles said that it would not be a big surprise if the economy fell into a technical recession this quarter after the 0.2% contraction in Q4 11.

However, in his view this was not a substantial concern as the likely trajectory of the economy for the second half of the year seemed more positive.

He thought the most likely outcome was that the economy would experience significantly positive growth by late 2012 or early 2013.

"This chimes with our view that, while the MPC is likely to authorise more QE at its February meeting, extending the programme beyond that might not be warranted if the economy starts to show clear signs of recovery. Nevertheless, Mr Miles balanced this more optimistic view of medium-term growth prospects by highlighting significant downside risks to growth, leaving the window open for further asset purchases if the economic conditions require them," say Barclays Capital.