Jens Weidmann of Bundesbank has a more optimistic view on the economic recovery
The EUR/GBP exchange rate has risen to a high of £0.856 today after previously crashing to £0.850.
The euro remained close to the day’s opening levels against the US dollar, with EUR/USD dipping modestly to $1.066.
Earlier Eurozone news drove the euro lower, with the region’s retail sales PMI for March coming in at 49.5, down from a previous figure of 49.9.
This result was a 4-month low for the single currency bloc.
IHS Markit economist Alex Gill said: “The marginal decline in sales highlighted…a divergence in underlying trends at the country level.
“The Italian retail sector remained precarious… monthly sales also dropped in France for the first time in three months.
“In contrast, sales grew at the fastest pace in six months in Germany.”
Sales grew at the fastest pace in six months in Germany
Further pressure was piled on the euro by European Central Bank (ECB) President Mario Draghi and ECB official Peter Praet.
Mr Draghi’s focus on maintaining low interest rates alarmed traders.
He said: “We are confident that policy is working and that the [economic outlook] is gradually improving.
The euro’s earlier weakness gave way to gains on Thursday
“Even so, we have not seen sufficient evidence to alter our assessment of the inflation outlook.
“Before making any alterations to…interest rates, asset purchases and forward guidance… we still need to build sufficient confidence that inflation will [meet our targets]”.
While the euro dropped to £0.850 against the pound on this news, it later recovered thanks to additional ECB comments and a general reversal in the pound’s fortunes.
With a more optimistic outlook on interest rates, Bundesbank President and ECB official Jens Weidmann said: “Given the prospect of a protracted, robust economic recovery in the euro area…
“It is legitimate to ask when the ECB Council should consider monetary policy normalization”.
The euro may fluctuate later today thanks to further remarks from Praet and insights from ECB Vice President Vitor Constancio.
Mario Draghi alarmed traders by maintaining low interest rates
Sterling’s weakening against the euro comes on a slow data day for the UK.
At the height of the euro’s earlier declines, the GBP/EUR exchange rate rose to €1.173, but after Weidmann’s speech the pairing dropped to €1.167.
The pound was previously bolstered by rising car sales and services sector activity in March, but the latest GBP movement shows that any support offered by this stat has faded.
The Euro has risen to £0.856 on the pound
There is a chance for a last-minute pound to euro rally on Friday, when the UK’s February trade balance data is published.
This previously showed a deficit reduction from -£2.03bn to -£1.97bn – if another reduction takes place then sterling demand may rise.
Other pound support could come from industrial and manufacturing production data, which is predicted to rise on the month and year in March.