Pound/Euro rises to €1.20 on ECB rate cut hint

Wednesday 20th November 2013 
So the Bank of England news this morning was a bit of a damp squib, with all 9 members voting to hold QE and interest rates, so didn’t have much effect on exchange rates. 

However, the Pound/Euro rate has shot back up to €1.20 this afternoon, after a surprise indication that the European Central Bank may cut the deposit rate to negative. So in today’s post I’m going to explain why this has caused the rate to go up, and analyse whether it will keep rising or drop back away. 

Pound/Euro rates shoot up to €1.20 

A report from Bloomberg this afternoon hinted that the European Central Bank may reduce the deposit rate to negative. 

This effectively means that commercial lenders that deposit funds with the ECB getting less return, or even potentially have to pay to lodge funds with them. These rumours caused investors to sell the Euro, and this has caused it to weaken and become cheaper to buy. 

As you can see from the chart above, there was an immediate reaction to the news, and Pound/Euro rates climbed to €1.20, a cent higher than we started the day. What is interesting is that this is not a scheduled release, which is usually what c