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Euro drops against Pound on ECB growth outlook

Euro drops against Pound on ECB growth outlook

In line with market expectation, the UK Monetary Policy Committee voted to maintain Bank Rate unchanged at 0.5% and kept the quantitative easing programme at £375 billion. Meanwhile, the UK trade balance for October showed a bigger shortfall than expected. The goods deficit widened to £9.5bn (consensus £8.8bn) mainly driven by a fall in exports,  particularly to the European Union.

Alongside, the European Central Bank (ECB) lowered its growth and inflation expectations for 2012 and 2013 , while holding its benchmark interest rate at 0.75%. The market expectations have dropped in response to continued uncertainty about the resolution of the sovereign debt crisis, the ECB President Mario Draghi, explained in a press conference .  He also announced the  gloomier growth forecasts for the Eurozone (GDP at -0.5% in 2012, -0.3% in 2013 and 1.4% in 2014) and confirmed the ECB’s stance of very accommodative monetary policy that included the prospect of negative deposit rates. The overall  outlook triggered price adjustments across the majors and pushed the euro to its biggest one-day slide in over a month.

On the FX markets, the bleak outlook for the European economy knocked the euro and stalled gains the region’s share markets on Friday, as investors waited to see if nonfarm payrolls data in the United States might affect its monetary policy plans. The GBPEUR is currently  trading at a range of 1.2374 – 1.2417.

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