Pound to Euro Exchange Rate Forecast: The Pound slipped below 1.2500 for the first time in over 2 months

The Pound slipped below 1.2500 for the first time in over 2 months last week as Mario Draghi defied the German Bundesbank to announce a new bond-buying scheme. Markets rallied in response to the development that could prove crucial in the future of the single currency.The Pound slipped below 1.2500 for the first time in over 2 months last week as Mario Draghi defied the German Bundesbank to announce a new bond-buying scheme. Markets rallied in response to the development that could prove crucial in the future of the single currency.

Foreign Currency Market Update – GBP / EUR Update

The Pound slipped below 1.2500 for the first time in over 2 months last week as Mario Draghi defied the German Bundesbank to announce a new bond-buying scheme. Markets rallied in response to the development that could prove crucial in the future of the single currency.

The Pound began last week’s trading at around 1.2620 against the Euro and was unable to climb any higher on Monday despite the UK economy posting a far stronger Manufacturing PMI than its 17-nation bloc equivalent. UK Manufacturing PMI improved from 45.2 to 49.5 during the month of August whilst the Eurozone figure fell from 45.3 to 45.1. However, the Euro was not suitably punished for its shortfallings because during the afternoon Mario Draghi stoked the fire of Euro optimism by commenting that his proposed bond-buying scheme would not compromise the European Central Bank’s legal framework.

Although it was released on Tuesday that the UK Constuction PMI figure fell into contraction during August, the Pound was able to grow by around 0.6 cents on the day as an unexpectedly strong Services PMI was unexpectedly released ahead of schedule. The leaked report showed an encouraging improvement from 51.0 to 53.7 in the Services sector which caught markets off-guard and led to a renewed optimism in the UK’s unlikely quest for economic revival.

Wednesday began where Tuesday left off: with a premature economic release. This time the single currency benefitted, as details of the ECB’s bond buying scheme spread across newswires like wildfire. GBP/EUR declined by around 0.5 cents.

On Thursday Mario Draghi spread his feathers like a peacock and played his trump card. His bond-buying programme, dubbed the Outright Monetary Transaction scheme, and aimed at bringing down the deficit between core and periphery debt yields, could prove immensely important in the future of the Euro. However market reaction was fairly subdued at first and it took until Friday for Draghi’s initiative to really kick-in.

The Pound to Euro exchange rate declined by over a cent, to a 2-month low, on Friday despite qualms regarding the legality of the programme, and fractured support from, the currency bloc’s paymaster, Germany.

Looking ahead and the effectiveness of Draghi’s newly unveiled scheme rests firmly in the hands of German lawmakers, who vote to ratify the European Stability Mechanism on Wednesday. The majority of market-players expect the ESM to pass the German Constitutional Court’s test with flying colours, but a less-than-satisfactory verdict could send the single currency into free-fall.

Another potentially market-moving decision will be announced on Thursday as the Federal Reserve Open Market Committee hold a high-profile press conference. If, as the recent weakening in US ecostats – particularly last Friday’s poor US Non-farm Payrolls figures – suggest, the Fed are on the cusp of a third round of quantitative easing measures, then the Euro could potentially appreciate further against Sterling on improved risk sentiment.

Many crisis-curing arrangements have been championed in the past, and many potentially good ideas have fallen short; and for this reason the threat of failure will reign over the single currency until definitive improvements can be seen.

Heads Up

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

 

Related posts:

  1. Pound to Euro Exchange Rate Forecast: The Pound to Euro exchange rate fluctuated within a tight one-cent range
  2. The Pound slipped against the U.S Dollar exchange rate and the Yen
  3. Pound to Euro Exchange Rate Forecast: The Pound has fallen by almost 2 cents against the Euro
  4. Pound Sterling, the Euro and US Dollar exchange rate forecast – The Pound actually rallied against the Euro for the first time in six trading days
  5. Pound Sterling, the Euro and US Dollar exchange rate forecast – The Pound plummeted to the lowest level in 15 months against the Euro

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