Pound Sterling to Euro Foreign Currency Exchange Rate Forecast

By Jon Beddell

Foreign Currency Market Update – GBP / EUR Update

Pound Sterling to Euro Foreign Currency Exchange Rate Forecast

Sterling closed on Friday exactly unchanged on the week. In fact, despite the big movements in other markets the weekly closing price of Sterling/Euro has been stuck within a one cent range for six weeks now. Looking more closely at the daily action the Pound did benefit from a weak German growth figure last Tuesday, GDP coming in at just 0.1% growth for the quarter compared to 0.5% expected. EU GDP was 0.2% against 0.3% expected. UK consumer price index for July edged higher to 4.4% from 4.2% for June. However, the interest rate makers at the Bank of England are firmly on the fence and in light of the economic softness evident elsewhere it will take more than this to push them off, especially while wage growth remains at a below expected 2.2% when bonuses are excluded. Public sector net borrowing fell to just £20m in July as a windfall levy on banks’ balance sheets boosted receipts by £660m in the month, and lower local spending reduced outflows.

All in all there has been no major upsets on the data front, leaving the markets to focus on the steep stock market falls which are driving attitudes to risk. Sterling has spent the month in a three cent range, albeit tending back towards the 1.1400 – 1.1450 level at the end of each week. If you overlay the Sterling/Euro chart with any major stock market over the last few weeks it’s clear that if stocks fall, so does Sterling. That seems perverse considering Europe has a more acute debt burden than the UK, but it appears that Sterling is more vulnerable to market wobbles, and also benefits more if stocks rebound.

The technical outlook is mixed. The two clear levels to watch are 1.1550 on the upside (we’ve been repelled from here twice in August) and 1.1260 on the downside. A daily close beyond one of these levels should set the tone. In the meantime there is little in the way of clear direction.