The pound fell further against the euro on Wednesday morning, as the markets interpreted a speech by European Central Bank President Mario Draghi.
Sterling hit a seven-month low against the euro in the wake of Draghi’s speech, which sent the euro to a one-year high as investors took Draghi’s comments to mean that the ECB’s emergency stimulus programme may soon be withdrawn.
However the markets evened out slightly after a source close to Draghi said the markets had interpreted the speech wrongly, saying that Draghi had intended to signal tolerance for a period of weaker inflation rather than policy tightening in the near future.
“The market failed to take note of the caveats in Draghi’s speech,” one of the sources said.
Draghi had meant to say that autumn was the earliest that the bank would discuss rolling back its 2.3 trillion euro bond-buying programme, but that no decision would be guaranteed at that point.
In Asian and early European trade, the euro rose another 0.7 percent, adding to a 1.4 percent daily gain on Tuesday. It traded half a percent higher on the day at $1.1365 by 1100 GMT.
The pound is trading up 0.80 percent against the euro at 1548GMT.