Pound to Euro Exchange Rate Forecast: Prospects for the GBP EUR exchange rate have been shaped by two key risk events in mainland Europe over the past week

Currency

By on June 11th, 2012.
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Pound to Euro Exchange Rate Forecast - Prospects for the GBP EUR exchange rate have been shaped by two key risk events in mainland Europe over the past weekSpanish Prime Minister Mariano Rajoy stated yesterday that the eurogroup’s announcement spelled a victory for ‘the credibility of the euro’, and investors appear to agree with him; the GBP EUR exchange rate traded at 1.2268 when global currency markets re-opened following the weekend shut-down.

Foreign Currency Market Update – GBP / EUR Update

Prospects for the GBP EUR exchange rate have been shaped by two key risk events in mainland Europe over the past week. The first of these came last Wednesday when the European Central Bank elected to maintain its key lending rate at 1.00%. The GBP EUR exchange rate had been trading well into the 1.2400s prior to the ECB’s announcement, but the mini relief rally which followed the decision saw the pair dip to 1.2308, suggesting that a significant number of market participants had been expecting Europe’s central bank to trim rates in an effort to assist the region’s economy in riding out its current debt storm.

The second key risk event of note last week centred on Spain. Concerns over the Iberian state’s ailing banking sector kept the interest rates which the country’s government is paying on its bonds at worryingly high levels as the weekend close approached, preventing GBP EUR incurring any further losses. However, these fears have been addressed in the last 48hrs, with Saturday’s announcement by the eurogroup of eurozone Finance Ministers that they are set to make up to €100bn of emergency loans available to Spanish banks in an effort to shore-up their ailing balance sheets. Spanish policy-makers have been quick to argue that this does not constitute a ‘bailout’ because the funds will be given directly to a government-appointed body which will then redistribute them, rather than to the country’s government itself. However, in the eyes of the vast majority of analysts, Saturday’s events mean that Spain will become the fourth eurozone state to receive a bailout.

Spanish Prime Minister Mariano Rajoy stated yesterday that the eurogroup’s announcement spelled a victory for ‘the credibility of the euro’, and investors appear to agree with him; the GBP EUR exchange rate traded at 1.2268 when global currency markets re-opened following the weekend shut-down. This was significantly lower than Friday’s close at 1.2361. However the pair has edged higher in early trading today. A move back above 1.2361 to close the ‘price gap’ on the GBP EUR chart would send out a positive signal for GBP EUR once more. Conversely, if investors’ focus now moves away from Europe’s debt crisis, then selling pressure on the pair may increase, with the band of support just above 1.2100, last visited in the first three weeks of April, becoming a near-term target.

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Summary of major upcoming data releases that we think may move the market.

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