Pound euro exchange rates (GBP/EUR) sees best daily gains since April, more to come?

In late morning trade in London we see the pound to euro exchange rate trading 0.18 pct higher at 1.1829; considering a few days ago we were expecting a test of 1.16 this is a remarkable turn in events.

"All of the action was concentrated in EUR/GBP, which experienced its steepest losses since April," points out Kathy Lien at BK Asset Management.

The stability of the GBP/USD indicates that the 1.15% decline in the euro cross was triggered primarily by euro weakness.

(Please note: All quotes here taken from the wholesale markets; your bank will subtract a discretionary spread when passing on their rate. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering more currency. Please learn more here.)

Traders decided it was time to dump the euro en-masse yesterday morning when we got some interesting inflation and employment numbers released in Europe.

The selling in the pound euro exchange rate has been falling ever since.

Today's UK Manufacturing PMI release came in below expectations; however traders ignored this fact and failed to offer the shared currency any support.

"In UK the PMI Manufacturing came in at 56 versus 56.3 which was a little worse than expected, but the underlying data showed strength. Export orders were the highest since February 2011, purchase price inflation eased and domestic order demand grew as well," says Schlossberg.

Euro continues its decline against the US dollar

For further guidance on the GBP/EUR rate one needs to keep an eye on the headline euro dollar exchange rate (EUR/USD) - this is where the majority of anti-euro sentiment will be expressed and watching key technical areas here will be important.

"The Euro continued to drift lower in Asian and morning European session trade coming within 10 points of the key 1.3500 support level as concerns over the low rate inflation in the region sparked speculation that the ECB will introduce fresh accommodation measures before the year end," says Schlossberg.

The euro was the weakest of the high beta currencies sinking to a low of 1.3510 before finding some bids ahead of the 1.3500 level.

The unit has come under heavy liquidation as currency traders readjust their positions believing that the ECB will now become progressively more dovish as it tries to battle the deflationary forces in the region, while the Fed will turn to tightening as it considers a taper of QE early next year.

Regarding the outlook for the euro to pound sterling (EUR/GBP) exchange rate we hear from Geoffrey Yu at UBS:

"Fresh selling pressure materialised and the first support focus is at 0.8429, a close below which would trigger deeper sell-off to 0.8333. Resistance is at 0.8603."