The Pound to Euro exchange rate reached a 10-day high of 1.2774 at the beginning of the week to mark a 1.7 cent weekly gain for Sterling.
Foreign Currency Market Update – GBP / EUR Update
The Pound to Euro exchange rate reached a 10-day high of 1.2774 at the beginning of the week to mark a 1.7 cent weekly gain for Sterling. Both the Eurozone and the UK economy were treated to growth downgrades by their respective Central Banks, but the Pound benefitted strongly from Bank of England Governor Mervyn King’s remarks that an interest rate cut would not be forthcoming.
Last Monday the Pound fell to a 1-month low of 1.2558 as ECB bond-buying optimism continued to bring down the yields on Spanish and Italian government debt, which suggested that Mario Draghi’s proposals were having the desired effect on European markets.
On Tuesday Sterling rallied by around half a cent as the annualised Production and Manufacturing figures came in better-than-expected, both at -4.3%. Although the results marked 3-year lows for the Production and Manufacturing sectors, the fact that they were predicted to fall to 10-year lows, but didn’t, suggested that a minor upward revision could be made to last month’s dire UK GDP print.
On Wednesday the Pound grew by just under a cent within an hour of the Bank of England’s Quarterly Inflation Report as it suggested that further interest rate cuts would not be introduced despite deteriorating growth prospects for the UK economy. The BoE’s outlook for the rest of the year see’s GDP struggle to return to meaningful growth, however, that much was already known by investors and the threat of an interest rate cut was seen as far more dangerous to the value of Sterling. With the threat removed, the Pound was free to grow and managed to post a daily gain of just under 1 cent.
On Thursday Sterling continued to rise at a modest pace as the European Central Bank released a downgraded set of growth figures for the currency union. The ECB slashed their 2013 outlook from 1% to 0.6% and reduced this year’s forecast from -0.2% to -0.3%. The Pound managed to appreciate mildly by around 0.3 cents as investors were reminded of the severity of the situation in the 17-nation bloc.
The Pound kept its upward momentum through Friday as the EU harmonised German and Italian headline inflation figures both printed slightly worse-than-expected, which added to the pressure on Mario Draghi to cut interest rates in the region.
At the start of this week better-than-expected, yet still dreadful, Greek GDP data allowed the Euro to reclaim around 0.4 cents of last week’s losses. The Greek economy contracted by -6.2% on an annualised basis compared to an anticipated drop of 7.0%.
On Tuesday growth figures from across the continent painted a relatively depressing picture, with only a few areas of merit. The Eurozone-wide GDP figure shrank by -0.2% as expected, with Italian, Spanish and Finnish growth contracting sharply. The French economy managed to avoid shrinkage and posted a third consecutive month of stagnation whilst the robust German unit beat analysts’ expectations to post growth of 0.3%.
However the positive German figure is thought to be misleading according to the German ZEW economic survey, the Current Situation print reached a 2-year low of 18.2, and the Expectations figure fell from -19.3 to -25.5 suggesting that a period of economic downturn awaits the German economy.
Looking ahead this week and the BoE’s minutes report is unlikely to discuss anything new – as the Quarterly Inflation Report was only released last week – the Eurozone CPI figure is expected to remain steady, and the slight rise in UK Inflation today does nothing to inspire interest rate hike hopes given the dismal state of the UK economy at the moment. This leaves the Sterling / Euro rate susceptible to the debt crisis and with the well-oiled machine that is the German domestic economy looking shaky going forward it is entirely possible that we could see the Pound push on further from last week’s near 2-cent weekly gain.
Summary of major upcoming data releases that we think may move the market.
- Pound to Euro Exchange Rate Forecast: The Pound to Euro exchange rate reached a fresh three-and-a-half year high of 1.2627
- The Pound reached a fresh three and a half year high against the Euro
- The Pound to Euro exchange rate reached a three and a half year high on Monday of 1.2443 as general elections in France and Greece left financial markets reeling.
- Pound to New Zealand Dollar Exchange Rate Forecast: The Pound reached a two-week high of 1.9652 against the New Zealand Dollar
- Pound to Australian Dollar Forecast: The Pound reached a 2-week high against the Australian Dollar