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The pound reaches a 3 month high against the euro

Published: 9 May at 10 AM Tags: Pound Sterling, Euro Exchange Rate, Euro Crisis, UK, Economy, Inflation, Spain,

The pound rose to a 3 month high yesterday afternoon against the euro after the Bank of England’s Monetary Policy Committee (MPC) voted to maintain unchanged both the benchmark interest rate at 0.5% and the stock of purchased assets, commonly known as Quantitative Easing (QE) at £375 billion.

Meanwhile, the Royal Institution of Chartered Surveyors (RICS) reported yesterday that the rate of increase in UK house prices eased in April with the seasonally adjusted house price balance retreating from a reading of 57 in March to 54 in April.

RICS Chief Economist Simon Rubinsohn said "House prices in general look set to remain firmly on the upward trend, although interestingly, there are some tentative signs that the price momentum in the London market may begin to slow in the second half of the year".

Meanwhile, the Office for National Statistics (ONS) reported that UK manufacturing output rose by more than was expected in March with a rise of 2.3% in the last 12 months in industrial output.

The good news out of the UK economy continued with a report from the National Institute of Economic and Social Research (NIESR) that the UK economy is projected to grow by 2.9% in 2014 and by a further 2.4% in 2015.

The NIESR also predict that UK unemployment will hit 6.5% in 2014, notably below the 6.7% figure predicted just three months ago. The 2015 forecast was also lower, falling from 6.5% to 6.2%.

Yesterday, the European Central Bank (ECB) followed suit as it also decided to keep its main lending rate unchanged at 0.25% for the sixth month in a row. However, ECB President Mario Draghi seemed to leave the door open to possible policy action as early as next month stating at his press conference that the Governing Council is “comfortable” with the idea of action in June saying “The Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate in order to cope effectively with risks of a too prolonged period of low inflation.”

Draghi also highlighted the effectiveness of the structural economic reforms which had been undertaken in Spain, Greece, Ireland and Portugal, in that order. Of note, he did not mention Italy.

The euro promptly fell following Draghi’s comments.

The euro received some support after credit ratings agency Standard & Poor's (S&P) upgraded its outlook on Portugal's credit rating from ‘negative’ to 'stable' saying the nation's economic and budgetary performance has outpaced its expectations. S&P also affirmed its 'BB/B' ratings on the country.