PRODUCT PROFILE

Latest Dublin Prices

Euro rises to 87.645p sterling on BoE

Wednesday, February 20 15:47:48

The euro rose by 1pc this afternoon to 87.645 against Sterling after the Bank of England appeared closer than expected to loosening monetary policy and in no hurry to curb inflation.

The pound's broad-based losses drove it to a 17-month low against a trade-weighted basket of currencies after minutes from the BoE's latest policy meeting showed outgoing Governor Mervyn King and two other officials voted to relaunch asset purchases under its quantitative easing (QE) programme.

The vote against extending QE was 6-3, closer than the forecast for an 8-1 split.

Policymakers also considered expanding the range of assets they purchased under QE -- typically negative for a currency because pumping more money into the economy increases the supply -- and cutting interest rates.

The minutes compounded pessimism about sterling's outlook, which has also been hit by fears of a downgrade of the UK's triple-A credit rating and a report last week that showed the BoE was willing to tolerate higher inflation over a longer period.

"The BoE have moved the goalposts. They are now saying that despite higher inflation they are thinking of doing more QE, so it is clear sterling has to weaken," said Hans Redeker, head of Global FX strategy at Morgan Stanley.

The pound fell nearly 1 percent against the dollar and the euro, hitting a near 8-month low of $1.5281 while the euro jumped to 87.645 pence, its highest since late October 2011. Sterling's trade-weighted index fell to 78.7, the BoE said.

Sterling's slide left it with the potential for a drop over the next six months towards levels not seen since mid-2010.

"If the central bank continues in this way you have to think that $1.40/$1.42 could come into play within the next couple of quarters," Morgan Stanley's Redeker said.

The BoE also indicated it is prepared to allow inflation to remain above its 2 percent target beyond the two-year horizon outlined in its mandate. (C ) Reuters