Pound to Euro Exchange Rate Forecast: The path of the Pound to Euro exchange rate has resembled that of a yoyo

Currency

By on June 20th, 2012.
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Pound to Euro Exchange Rate Forecast - The path of the Pound to Euro exchange rate has resembled that of a yoyoThe strength of the Euro remains under severe pressure as we await the outcome of Greece’s almost successful election and Spain’s non-bailout package aid deal.

Foreign Currency Market Update – GBP / EUR Update

The path of the Pound to Euro exchange rate has resembled that of a yoyo over the past week due to a number of different market-moving events. GBP/EUR opened at 1.2272 last Monday following the news that the Eurogroup of Eurozone finance ministers were set to pledge €100 billion in emergency loans to support the fragile Spanish banking sector. Although the loans were not billed as a bailout package, many in the industry viewed the emergency measures as tantamount to crisis aid, and the Euro slid back down.

By Tuesday afternoon the Pound had rallied back up to 1.2474 on the news that NIESR’s 2nd quarter GDP estimate showed a return to growth for the UK economy. However Sterling swiftly slipped from this peak and fell as far as 1.2265 on Friday as the Eurozone performed slightly better in terms of Industrial Production and Consumer Price Index inflation. The Pound picked up a bit of momentum throughout the day, despite the UK Visible Trade Balance falling further into the Red, and ended the week at 1.2433.

The second round of Greek elections took place over the weekend with the pro-bailout New Democracy party clinching a narrow victim over the extremist leftwing SYRIZA bloc. The election results should allow the pro-bailout parties of PASOK and the Democratic Left to join New Democracy in a coalition that would ensure Greece remains inside the Eurozone. With Greek exit fears put on hold for the time being, the Euro managed to open this week’s trading at 1.2373 – half a cent stronger than Friday’s closing figure.

The rollercoaster ride continued though Monday and Tuesday with Spanish borrowing costs remaining dangerously high which combined with the sharpest decline in German ZEW survey data since 1998, allowed the Pound to rise back up to 1.2460. The final twist came on Tuesday morning as UK Consumer Price Index fell from 3.0% to 2.8% in May which has caused many analysts to suggest that the door is now open for the Bank of England to resume their asset purchasing scheme. Naturally this weighed on the Pound and GBP/EUR lost two-thirds of a cent and fell to 1.2395.

The strength of the Euro remains under severe pressure as we await the outcome of Greece’s almost successful election and Spain’s non-bailout package aid deal. However the Pound is preoccupied with problems of its own as falling inflation could lead to further quantitative easing.

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