Bank of England (BoE) Policymaker Ian McCafferty expressed a hawkish sentiment this morning when he announced that the BoE should consider unwinding its £435bn quantitative easing programme sooner than originally intended.
Mr McCafferty is one of the three responsible for rate setting that voted for an increase last month, citing the need for the BoE to review its policy on leaving quantitative easing alone until interest rates approach 2%.
Not only did McCafferty call for unwinding of quantitative easing, he also stated outright that he was inclined to vote for a quarter-point rate rise again in August, a soundbite that drove Sterling to reach a high of 1.1348 against the Euro, despite markets being well aware of his hawkish tendencies.
Eurozone Inflation Stats Disappoint
Eurozone inflation figures were somewhat mixed today, with Germany’s final figure matching the initial estimate of 1.6% whilst France and Spain’s final numbers were both negatively revised. Something which may result in next week’s final Eurozone CPI figure being revised lower.
The fall understandably knocked the Euro and further enabled the Pound to capitalise on the recent hawkish remarks from the BoE.
ECB Rate Hike Uncertainty Leaves the Euro (EUR) Floundering
Investors have been somewhat hesitant to buy into the Euro recently, as uncertainty regarding the possibility of a future rate hike from the ECB has been exacerbated by various comments from officials.
Whilst last week the ECB meeting minutes revealed that the bank had no intention of extending its aggressive quantitative easing scheme, yesterday Ignazio Visco, Governor of the Bank of Italy, announced that monetary conditions would need to demonstrate growth in order to warrant an increase, so uncertainty still reigns.
This week’s Eurozone data has been predominantly strong, but the Eurozone’s inflation still doesn’t meet the require benchmark for a rate hike, and this is, essentially, the crux of the anxiety surrounding the Euro, as an increasingly dovish sentiment indicates that the Eurozone’s interest rate will likely remain as it is for the near future.
Current Interbank Exchange Rates
At the time of writing the Euro to GBP (EUR GBP) exchange rate is trading at 0.8822. Conversely the Pound Sterling to Euro (GBP EUR) exchange rate is trading at 1.1333.