LONDON: Sterling rose against the euro on Monday, after a senior European Central Bank policymaker said a cut in euro deposit rates to negative could be considered if the euro zone economy deteriorated.
A cut in the deposit rate - the rate at which the banks park their excess funds with the ECB, currently at zero - to negative could make holding euros less attractive to most investors and lead to a sell-off, traders said.
ECB Governing Council member Ignazio Visco was quoted as saying that the ECB could take its deposit rate below zero to help the ailing euro zone economy, joining others including ECB President Mario Draghi who have flagged such a prospect.
In contrast, a recent pick-up in activity in the British economy has lessened the chances of more monetary easing or asset purchases, in the near term by the Bank of England (BoE).
The euro was down 0.2 percent at 84.385 pence, not far from a near four-month low in late April of 83.98 pence.
"Visco's comments pushed the euro down," said a spot trader at a London-based currency brokerage house. "With the BoE expected to be on hold for now, euro/sterling could go lower."
Attention now turns to BoE's Quarterly Inflation Report, where it is expected the Monetary Policy Committee will note easing price pressures, the recent pick-up in economic activity and possibly signal further monetary easing is not imminent.
But the pound is likely to keep lagging the dollar which is gaining ground on expectations the Federal Reserve may slow its asset purchases programme.
Sterling was slightly lower against the dollar at $1.5355, with near-term support at its 55-day moving average of $1.5244.
Comments
Comments are closed for this article.