That'll do it: Pound climbs as ECB minutes suggest concern over euro strength

Emma Haslett
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Germans Doubt the Euro
The minutes showed concerns over the euro's strength. (Source: Getty)

The pound spiked against the euro earlier this afternoon after minutes of a European Central Bank meeting showed its top policymakers are worried about the strength of the euro.

The pound rose 0.6 per cent against the single currency to €1.1024 in lunchtime trading, while the euro fell 0.8 per cent against the dollar, to $1.1669.

After processing the news, the euro regained some ground against the pound in afternoon trading and is worth €1.0975 at 4.30pm.

In the minutes, policymakers expressed a concern the euro could over-inflate in value:

While it was remarked that the appreciation of the euro to date could be seen in part as reflecting changes in relative fundamentals in the euro area vis-à-vis the rest of the world, concerns were expressed about the risk of the exchange rate overshooting in the future.

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"Concerns were expressed about a possible overshooting in the repricing by financial markets, notably the foreign exchange markets, in the future," added the minutes.

The currency has benefited from economic strength in the Eurozone, as well as weakness in both the US and UK. It has climbed more than 16 per cent against sterling since the Brexit vote, and almost six per cent against the dollar since Donald Trump was elected last November. At the beginning of this month the currency hit a 30-year high against the dollar as political chaos across the Atlantic caused investors to offload the greenback.

Monetary tightening

Meanwhile, economic strength in the Eurozone has sent expectations the ECB will begin to unwind its monetary easing policy higher.

Figures published this month showed the bloc's economy grew at twice the rate of the UK in the second quarter, as unemployment fell to its lowest since early 2009 in June.

But in July Sabine Lautenschlaeger, an influential member of the ECB's executive board, said inflation needed to reach a "stable trend" before the bank can begin unwinding its €2bn quantitative easing programme. Inflation in the Eurozone slowed to 1.3 per cent in June, from 1.4 per cent in May.

The minutes added:

As yet there were no convincing signs of a sustained upward adjustment in underlying inflation. Price pressures in the early stages of the supply chain remained strong but had still not been transmitted to producer prices at later stages. In addition, domestic cost pressures, including wage growth, remained subdued.

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