Pound climbs as European Central Bank minutes suggest concern over euro strength

The silhouette of people standing in front of a window in the lobby area of the Jackson Lake Lodge during last year’s Jackson Hole economic symposium

European Central Bank policymakers anxious about a possible overshoot in the euro when they met on July 20, warning that easy financing conditions "could not be taken for granted" and depended on the ECB's easy policy, minutes of the meeting showed on Thursday.

"Concerns were expressed about a possible overshooting in the repricing by financial markets, notably the foreign exchange markets, in the future", the European Central Bank said in the accounts.

ECB President Mario Draghi's comments at a banking forum in Portugal late June fed market expectations of an imminent tapering and send yields and the euro soaring.

The single currency was trading slightly higher at $1.1763 in early trades, nearing a 2-1/2 year high of $1.1910 hit earlier this month.

This was based on the notion that waiting too long to tweak guidance could create a "misalignment" between the ECB's communication and its assessment of the economy, which could bring about increased market volatility when the communication eventually changed.

However, this was turned down as "it was generally judged paramount at this stage to avoid sending signals that could be prone to over-interpretation and might prove premature". "Today's minutes fit into the picture of an ECB which wants to steer and moderate the process towards tapering extremely cautiously", said ING Diba bank analyst Carsten Brzeski.

We believe European Central Bank would begin the discussion of tapering asset purchases in coming months.

The council was broadly satisfied that financial conditions remained supportive of economic expansion, but remarked on "re-pricings" in foreign exchange and bond markets that had "led to some deterioration since the previous meeting".

The minutes showed that council members felt inflationary pressure remained below acceptable levels. Measures of underlying inflation had remained low and were yet to demonstrate convincing signs of a pick-up, as domestic cost pressures, including wage growth, remained muted.

In a Reuters report on Wednesday, ECB sources poured cold water on any hopes for a hawkish shift from Draghi at the U.S. Federal Reserve symposium next week, saying Draghi will not deliver any new policy messages at the conference.

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