LONDON (Reuters) - Sterling hit a seven-year high against the euro on Thursday after the European Central Bank unveiled a quantitative easing programme that will pump over a trillion euros into the faltering euro zone economy.
The ECB said it would start buying government bonds in March and would keep doing so until September 2016. Together with existing schemes to buy private debt, the programme will be worth 60 billion euros a month.
That will amount to a balance sheet expansion of 1.08 trillion euros -- much higher than a consensus of around 600 billion in a Reuters poll of economists.
The euro hit its weakest since early 2008 against sterling at 75.66 pence after the announcement, down over 1 percent on the day.
“What the ECB has announced today is what the UK did many moons ago,” said Daragh Maher, a currency strategist at HSBC. “I don’t think it has any bearing on when the UK raises interest rates.”
Maher added that there was so much speculation that the ECB would disappoint with a smaller programme than expected that the euro had been set up for a fall.
Against the dollar, the euro fell to an 11-year low, dragging down sterling with it against the dollar. Sterling traded at $1.5041, down 0.7 percent on the day and close to an 18-month low of $1.5034.
Richard Cochinos, a currency strategist at Citi, said euro/sterling was the bank’s favourite cross rate through which to express weakness in the single currency in the wake of the ECB.
The pound had fallen to as low as $1.5076 on Wednesday after a U-turn by two Bank of England policymakers that convinced investors interest rates will stay low for a long time.
Martin Weale and Ian McCafferty, who since August had called for an end to record-low interest rates, said a rate rise now might cause below-target inflation to become entrenched, leaving all nine members in favour of keeping rates where they are.
The minutes led investors to push back expectations for a first UK interest rate hike well into next year -- a big change from six months ago, when most were calling for a rise early this year and some expected it by the end of 2014..
Editing by Susan Fenton/Ruth Pitchford