Money Transfer UK: Pound Euro exchange rate reaches a 19 month high against the euro

The pound briefly trade yesterday afternoon at a 19 month high after the decision by the European Central Bank (ECB) to lower the deposit rate into negative territory. As a result, the ECB becomes the first major central bank to take this policy initiative.

The ECB’s decision to cut the deposit rate by 0.1% to -0.10% comes in the aftermath of the latest inflation data from the euro zone with mounting concerns about weak inflation, which at 0.5% remains well below the ECB’s target of just under 2%.

The ECB also announced the decision to cut interest rates by 0.1% to 0.15%. Both changes will come into effect from 11 June.

At his monthly press statement, ECB President Mario Draghi said “The decisions are based on our economic analysis, taking into account the latest macroeconomic projections by Eurosystem staff, and the signals coming from the monetary analysis. Together, the measures will contribute to a return of inflation rates to levels closer to 2%.”

Another new measure unveiled by Draghi was targeted longer-term refinancing operations (LTRO) to support lending to households and non-financial corporations, excluding loans to households for house purchase, initially worth €400 billion with all the LTROs maturing in September 2018.

To cap it all, Draghi said the ECB is “not necessarily finished yet” despite the major policy shake-up.
Earlier and as expected, the Bank of England (BoE) decided to keep monetary policy on hold as it continues to persue a policy of ‘wait and see’ over the strength or otherwise of the UK economic recovery.

Thus, the base rate was kept at its record low level of 0.5%, a rate first reached in March 2009. Meanwhile, the size of the asset purchase programme also remains unchanged at £375 billion. This was last adjusted in July 2012.

An increasing number of analysts are now forecasting that the BoE may begin to raise rates by 0.25% in November 2014 and could take them to 2.5% by the end of 2016.