The euro/sterling rate matters because the economic ties between Britain and the euro zone are so strong. The euro accounts for a near-50 percent weight in sterling's trade-weighted index, and sterling an almost 15 percent weighting in the trade-weighted euro. Euro zone inflation has fallen short of the ECB's target of close to but below 2 percent for most of the last five years. On the other side, sterling's low exchange rate supports UK growth by making exports more competitive, but lifts inflation by making imports more expensive. Fortunately for the ECB and BoE, euro/sterling has risen so much in such a relatively short space of time that a pause seems likely.

Source: Times of India September 01, 2017 14:03 UTC