The pound climbed to its strongest level in almost seven years versus the euro after the European Central Bank said it would expand its economic-stimulus program to include buying euro-area government bonds.
Sterling slid against the dollar after data showed Britain had a larger budget deficit in December than analysts forecast and Bank of England policy maker David Miles said slowing inflation has eased pressure on U.K. officials to raise interest rates. ECB President Mario Draghi announced the plan in Frankfurt on Thursday, sending the euro tumbling on bets an expansion of its asset-purchase program would devalue the shared currency. U.K. government bonds were little changed.
“Although a fair amount of euro weakness was priced in prior to today’s announcement, further pressure will be put on the single currency with flow moving towards the dollar and the pound,” said Harry Adams, head of trading at Argentex LLP, a currency advisory company in London. “The ECB have met expectations and possibly exceeded, but time will tell.”