Pound Sterling to Euro Foreign Currency Exchange Rate Forecast – The Euro Makes Sterling Look Good

By Jon Beddell

Foreign Currency Market Update – GBP / EUR Update

Pound Sterling to Euro Foreign Currency Exchange Rate Forecast - The Euro Makes Sterling Look Good

Sterling has surged by nearly four cents in two weeks as the Euro zone debt crisis continues to deepen. Heads are rolling in scenes befitting a belated Halloween horror. First the Greek prime minister was forced to step down after a bungled call for a referendum on whether to accept another bailout, leaving the country on the verge of economic disaster. After much political wrangling a new prime minister Lucas Papademos has been appointed. He is not a politician but is perhaps a more credible figure to deal with the country’s fiscal position having been vice president of the ECB and governor of the Greek central bank. Italy’s prime minister Silvio Berlusconi is next to go having finally succumbed to market forces. Yields on Italian bonds had reached 7% leading up to his decision to resign, similar levels that triggered the Greek default. If investors are demanding such high returns for new finance it clearly indicates that the market does not trust the creditworthiness of the issuer. Berlusconi is backing a respected EU commissioner Maria Monti as his successor. The positions of Greece and Italy are now pretty dire, but in both cases a credible replacement is being lined up which appears to be allaying the sense of panic that had gripped the Euro over the last two weeks. This may insulate the single currency from further sharp falls in the short term.

In the UK the Bank of England kept interest rates and the quantitative easing package on hold yesterday. Manufacturing and industrial production data came in roughly in line with expectations but the trade balance widened more than expected for September. All in all these normally important data were viewed as side issues, the big news coming from Europe.

The technical outlook is mixed. Sterling has seen a good run and reached levels that have tended to mark short term highs over recent months. If the Pound could establish itself above 1.16 over the next couple of weeks that could provide a platform for a push to 1.20, but given the already deep despair over the Euro zone we may well have already seen a short term high on the basis that most of the Euro’s known problems are reflected in the price. Buyers of the Euro should consider covering at least half of any exposure at current rates.

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