GBP struggling to regain the initiative, Bank of England minutes fail to deliver a boost
The pound to euro exchange rate is currently 0.2 pct in the red 1.1658. Today's MPC minutes have failed to deliver a much-needed boost to sterling today.
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The Bank of England MPC Minutes were a bit of a non-event; so all eyes are now on the US FOMC for forex market guidance, technical considerations are also likely to dominate the outlook.
Pound loses the initiative after a strong month
The British Pound fell aggressively against all of the major currencies despite signs of higher inflation.
"The weakness was driven entirely by demand for EUR/GBP, which saw its strongest gain in nearly a month. UK consumer prices increased more than anticipated in the month of May. Economists expected a rise of 0.1% but CPI rose 0.2% month over month and 2.7% on an annualised basis. The rise in inflation was driven by the previous month's increase in clothing prices and airfares and decrease in fuel costs," says Kathy Lien at BK Asset Management.
EUR - Lifted by Stronger Investor Confidence
Turning to the other side of the pound to euro equation we see the euro remains in a bullish mood.
The euro traded higher against all of the major currencies today thanks to the improvement in Eurozone and German investor sentiment.
The Eurozone ZEW survey rose to 30.6 from 27.6 and while investors grew less optimistic about current conditions in Germany, their confidence in future conditions improved with the expectations component of the German ZEW rising to 38.5 from 36.4.
"With the European Central Bank taking additional steps to stimulate the economy, this data indicates that investors are looking for a stronger recovery," says Lien.
In a farewell conference for Bank of Israel Governor Stanley Fischer today, European Central Bank President Mario Draghi talked about ECB monetary policy. He said the central bank would consider non-standard measures including the possibility of negative deposit rates.
Draghi said, "We will look with an open mind at these measures that are especially effective in our institutional setup and that fall within our mandate."
Yet he warned that these non-standard measures could also lead to unintentional consequences. Parts of the Eurozone have been unresponsive to monetary policy and Draghi has set to regain its steering capacity.
He pointed out that the introduction of non-standard policy measures along with standard measures helped prevent the materialization of deflation risk. The euro has been rising this year as confidence in the Eurozone is restored. Draghi also said that the exchange rate is "important for growth and price stability."
Survey data suggest some recovery in the Euro-zone but from low levels and as such "monetary policy will remain accommodative for as long as necessary."
The central bank will "monitor very closely all incoming information on economic and monetary developments and stand ready to act if necessary." No major Eurozone economic reports are scheduled for release tomorrow, letting the market focus on FOMC.