Written by Josh Ferry Woodard on March 19th, 2012
Looking ahead at the week to come and all of the major releases are set to come from the UK.
Foreign Currency Market Update – GBP / EUR Update
The Pound to Euro exchange rate recovered from a weekly low of 1.1880 last Monday to consolidate above the 1.2000 threshold before markets closed on Friday night. The Euro’s push below 1.19000 was short lived as optimism surrounding the Greek debt deal began to settle.
The pound improved by over a cent against the Euro on Tuesday as attention in the Eurozone turned to Spain. Newly elected Spanish Prime Minister Mariano Rajoy tested the Eurogroup of Eurozone finance ministers’ nerves by announcing that the country’s budget deficit target would now be 5.8%, rather than the Brussels-imposed target of 4.4%. The Euro tumbled on the news amid fears that the Spanish economy could be in a similarly dire state to that of the Greek one. The Bundesbank reported a drop in profits from €2.2 billion in 2010 to €643 billion in 2011. The sharp decline in profits of over 50% raised concerns that central banks within the Eurozone may eventually be forced to pay the price for the sovereign debt crisis. The news compounded the Euro’s misery and allowed the Pound to rally back to a weekly high of 1.2057.
However the Pound did come under some selling pressure on Thursday as Fitch joined Moody’s in putting Britain’s coveted AAA credit rating on negative outlook. They warned that weaker than expected recovery in the economy could foil government efforts to transform debt into growth. Sterling dropped below 1.2000 against the Euro briefly following the news, but the Pound rallied back above the psychological figure before the day was out.
The Pound has started this week strongly at 1.2064 as Mohamed El-Erian, chief executive of bond fund giant PIMCO, stated that Portugal will follow in Greece’s footsteps and require a 2nd bailout fund this year.
Looking ahead at the week to come and all of the major releases are set to come from the UK. Inflation, in the form of Consumer Price Index, is set to fall from 3.6% to 3.3% in line with the Bank of England’s target rate of 2.0% in 2 years time. The BoE minutes report is expected to see the central bank maintain the interest rate at 0.50% and hold the asset purchasing fund at £325 billion. Positive rhetoric from the report could send investor confidence in the Pound higher, although any mentions of further QE could weigh down on the Sterling to Euro exchange rate.
Summary of major upcoming data releases that we think may move the market.
- The Pound to Dollar rate improved from 1.550 in the morning
- Eurozone Gross Domestic Product sank to -0.3% in the fourth quarter
- The Pound to Euro Exchange Rate has been fluctuating around the 1.200 mark this week
- Daily Foreign Exchange Rate Forecast – the Pound consolidated on Tuesday’s 1.7% gain against the Euro
- The Pound is holding strong against the Euro exchange rate