Pound to Euro Forecast – Sterling Trending Higher?

Pound Sterling to US Dollar Foreign Currency Exchange Rate Forecast - Sterling is trading relatively unchanged against the Dollar over the last weekThe Euro has rallied a couple of cents against the US dollar and at least halted its slide against the Pound since the New Year.

By Jon Beddell

Foreign Currency Market Update – GBP / EUR Update

The old adage “one swallow doesn’t make a summer” has been the first proverb to spring to mind when reviewing Sterling’s performance over the last few years. We’ve seen several attempts at recovery but always ended up drifting lower again. It seems that there’s been little to chose between the two currencies, and whenever we have seen a rally Sterling has always failed to break far above the 1.22′s. It made its best attempt in August 2010 when it topped the giddy heights of 1.2227. From there we drifted back to 1.12, and even saw the 1.10′s during 2011. However, it could be said that we’re seeing more than a single swallow this time, as we’ve actually managed to make a new high for six consecutive months. A single swallow may not herald summer but surely six months of higher highs must indicate some sort of thaw in Sterling’s hitherto frozen fortunes?

Last Week

There were a few noteworthy snippets from last week. The inflation beast is at last looking a little tamer, with core price inflation dipping to 4.2% from 4.8% last month, and retail prices taking a similar dip to 4.8% from 5.2%. Further moderation is expected as a result of last year’s VAT increase falling out of the comparatives from January. European inflation dipped a little to 2.7% from 2.8%. UK unemployment ticked higher to 8.4%.

Heads Up

*Denotes the importance of the data item *** being the highest level.

**The UK’s latest public borrowing figure for December is out on Tuesday with £13.4bn of borrowing expected.
***Preliminary estimate of Q4 GDP is out on Wednesday (09:30) with markets looking for a 0.1% contraction quarter on quarter, and 0.8% annualised growth
**Bank of England minutes from the last meeting are out at the same time as the GDP data. The market will be looking for any changes in the panel’s interest rate bias and comment on the size of the asset purchase facility (otherwise known as quantitative easing).
*In Euro land there are a range of purchasing managers survey’s out on Tuesday morning. These indices give a measure of economic activity in the manufacturing and service sectors.

Outlook

European bond yields have dropped off steadily over the last week or two, which effectively brings the sovereign debt crisis back to an uncomfortable simmer. Italian yields went well above 7%, the level that triggered total meltdown for Greece, but currently trade back around 6.15%. The Euro has rallied a couple of cents against the US dollar and at least halted its slide against the Pound since the New Year. However, given the fact that Sterling has been in the ascendancy and the Euro zone’s problems are far from resolved, Sterling looks likely to edge higher. The big question comes at 1.22. A break above there would be highly significant, but we’ve been here before so we advise clients to remain cautious and consider hedging at least half of any Euro exposure at current levels.

Related posts:

  1. Sterling Euro US Dollar Foreign Currency Forecast – The pound gained over 0.5% against the euro yesterday on the back of higher than expected inflation data
  2. Pound Sterling to US Dollar Foreign Currency Exchange Rate Forecast – Sterling edges higher as US debt talks stall
  3. Pound Sterling to Euro Foreign Currency Exchange Rate Forecast – Sterling tests one year low…
  4. Pound, Euro US Dollar Currency Forecast – The Euro traded higher against the Dollar over the Easter weekend
  5. Pound Sterling to US Dollar Foreign Currency Exchange Rate Forecast – Sterling hits 15 month high…

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