Pound hits one-month high versus euro due to diverging monetary policies between ECB and BoE

The British pound strengthened to its highest level in a month versus the euro on Monday as a consequence of growing expectations that the European Central Bank will ease policy further. This led to the single currency falling across the board.

The ECB was under pressure to take a looser stance after the U.S. Federal Reserve left interest rates unchanged at its policy meeting last week, strategists said, because a Fed rate increase would have supported the European economy by weakening the euro against the dollar.

And ECB Chief Economist Peter Praet reiterated the bank’s readiness to modify its trillion-euro bond-buying programme if economic turbulence merits action, in an interview with a Swiss newspaper on Saturday.

The euro has performed well at times of risk aversion in recent months, hitting a 3 1/2-month high against sterling in late August after Chinese share prices plunged following a devalution of the yuan.

Stocks rose on Monday, and the euro suffered. The pound was up 0.8 percent against the single currency at 72.18 pence in afternoon trading, its strongest since August 21.

Meanwhile, in contrast to the ECB, the Bank of England is expected to begin raising interest rates next year. Last week, data showed British wages increasing at their fastest rate in over six years, keeping alive expectations that the BoE will tighten policy around the middle of next year, though inflation fell back to zero.

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