The Pound to Euro exchange rate fluctuated within a tight one-cent range last week but ultimately no progress was made.
Foreign Currency Market Update – GBP / EUR Update
The Pound to Euro exchange rate fluctuated within a tight one-cent range last week but ultimately no progress was made. The hopes of the single currency lay squarely on European Central Bank President Mario Draghi’s shoulders with regards to his bond-buying plan. Like an Olympic / Paralympic athlete waiting to spring from the blocks Draghi, has support from many corners of the economic stage, but also faces stiff competition from his vociferous rivals. In this case Bundesbank leader Jens Weidmann stands between Mario Draghi and glory as the outspoken German is strictly opposed to Central Bank intervention in the sovereign bond market.
The Euro is currently trading at around 1.2633 against the Pound, which is around 2.5 cents lower than June’s high of 1.2892. However for the single currency to avoid sliding back down ECB action must be forthcoming and it must be decisive.
Last week GBP/EUR slipped to 1.2571 as a surprisingly-strong-performing Spanish debt auction improved market sentiment towards the Euro. 3-month Spanish bond yields fell from 2.434% to 0.946% and the interest on 6-month notes dropped from 3.691% to 2.026% which suggested that traders were expectant of action from the ECB, which in turn led to a bout of Euro rallies.
However, despite further encouragement from Mario Draghi, in an article entitled, “The Future of the Euro: Stability Through Change,” the Pound reclaimed Tuesday’s losses and appreciated by 0.5 cents against the Euro on Wednesday as the ECB carried out a diversification of their reserves which included a large purchase of Sterling currency.
On Thursday it was announced that UK Mortgage Approvals improved from June’s 9-month low to a better-than-expected 47,312 in July, this data combined with the news that the European Commission’s Economic Confidence index had fallen to a 3-year low of 86.1 sent Sterling higher against the Euro.
On Friday, GBP/EUR fell by half a cent in the morning in anticipation of Fed stimulus hopes. But as Fed Chairman Ben Bernanke only hinted at QE3, during his speech at the Jackson Hole Symposium, the single currency was left frustrated and subsequently gave back its earlier gains against the Pound.
This morning it was announced that the UK Manufacturing PMI for August contracted more-mildly-than-was-expected, printing at 49.5 compared-to-an-anticipated 46.1. The encouraging release allowed the Pound to improve by 0.3 cents against the Euro and, with the Bank of England largely expected to remain in the sidelines over the next month, it is possible that we could see Sterling push on further over the coming week.
Thursday’s ECB Rate Decision will prove crucial in determining the direction of GBP/EUR in the near future; if the Central Bank follow through on market expectations and announce more details regarding their proposed bond-buying scheme then markets could rally in Draghi’s favour. However if the details are viewed by investors as insufficient – something which is distinctly possible seeing as Germany, the fund’s main contributor, will not have even voted on the legality of such a scheme until a week later – then the Euro could be subject to a mass sell-off, which would leave the Pound in good stead to appreciate against the single currency.
Summary of major upcoming data releases that we think may move the market.
- Pound Sterling, the Euro and US Dollar exchange rate news – The Pound remained in a tight trading range against both the Euro and the U.S Dollar
- The New Zealand Dollar traded within a tight trading range against the Pound
- Foreign Currency Rate Forecast News – The Pound declined against the Euro exchange rate for the sixth consecutive day
- 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
- Pound to Euro Exchange Rate Forecast: The Pound to Euro exchange rate is approaching levels not seen since March 2008