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Sterling to Euro rate awaits European Central Bank decision

Sterling to Euro rate awaits European Central Bank decision”

The ECB has made it clear that it will hold its benchmark interest rate at zero well after the purchases end.

The reason why little is expected right now: Draghi and top bank officials want to avoid a sudden market reaction that could prematurely send business and government borrowing costs higher before the phase-out starts.

But with the common currency up 3 percent over the last month and German bond yields firming in recent weeks, its rate-setters will be wary of sending hawkish signals that could risk stifling a broadening economic recovery while inflation is low.

Additionally, the monthly declines seen in sales and sales excluding fuel in May were revised smaller by -0.1% to -1.1% and -1.5% respectively.

The ECB's monetary policymakers left interest rates and asset purchases unchanged at its latest meeting in Frankfurt today, but markets responded to Draghi's hint of tightening to send the euro above $1.157 against the United States dollar after earlier falling to nearly $1.148.

Among the most important data expected in the coming week, investors will be keenly waiting for second-quarter U.S. GDP data.

With the eurozone economy now growing for the 17th straight quarter, its best run since before the 2007-08 global financial crisis, that at least suggested the European Central Bank is starting to contemplate easing off the accelerator, preserving some firepower after printing almost 2 trillion euros (US$2.3 trillion) to jump start growth. This program will be followed later by interest rate hikes.

"While the ongoing economic expansion provides confidence that inflation will gradually head to levels in line with our inflation aim, it has yet to translate into stronger inflation dynamics", Draghi said.

Inflation remains the main problem confronting the European Central Bank. Overnight, the Bank of Japan announced it was maintaining its policy position unchanged, while yet again delaying the deadline to hit 2 percent inflation. The euro was at $1.1577 to the euro from $1.1515.

He added that the European Central Bank "is unlikely to provide any firm guidance" on what will happen to the bond purchases next year. Market analysts expect the bank to then start tapering purchases.

"Traders may have found that Draghi's comments were less dovish than anticipated, despite his emphasis on the continued need for significant stimulus and on subdued underlying inflation". The ECB purchases the bonds with newly created money, pushing that new money into the financial system and the economy.

He did not set a set a time frame for the tightening of the bank's ultra-loose monetary policy, but said that policymakers were "unanimously agreed" on opening talks after the summer recess. In particular, an end to the bond purchases could mean more pressure on highly indebted eurozone members such as Italy, which are now paying very little to refinance their large debt piles.



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