Pound euro exchange rate should accelerate higher… at some point

The pound euro exchange rate continues to be hit by selling pressure the second it hits fresh highs it seems. However, sterling bulls should not lose hope suggests one forecaster.

The pound to euro exchange rate has slumped lower through the course of Tuesday's trade - a scenario this hoping for higher GBP/EUR rates have been accustomed to following any rally higher.

The going may be frustrating, but analysts at Afex urge patience.

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A note on the pound euro exchange rate outlook says:

"The response of values to successive new highs over recent months has been to sell-off and thus further gains may well prove unsustainable again in coming days.

"However, from a broad standpoint, a well established series of ascending weekly peaks/troughs is apparent and on this basis any such set-back would most probably be corrective only. Dips have localised support at 1.2120/30 and much more obvious/strong demand in the 1.2000 region, below which negative risk is seen as limited in any case.

"At some point prices should accelerate away on the upside, rather than "stair-case" higher as has been the case of late, but with GBP/USD also now approaching key resistance levels some caution is probably warranted here initially."

The euro today

The euro tested its highest levels against the US dollar in 2014 in the wake of a mixed German ZEW report overnight.

"The euro’s surprising resilience against the dollar has largely been the result of weak U.S. economic reports, which have raised questions about the trajectory if U.S. monetary policy. Going forward, the single currency will continue to benefit from any doubt about continued Fed tapering resulting from downside surprises to U.S. economic data," says Omer Esiner at Commonwealth Foreign Exchange.

The British pound today

The pound fell against the dollar and the euro overnight after U.K. CPI for January fell below the BOE’s 2.0% target for the first time since 2009. The drop in U.K. CPI to 1.9%(y/y) will likely reduce some pressure on the BOE to raise lending rates sooner than previously expected.

"The pound, which had traded as high as a five-year trade-weighted peak just yesterday, lost some of its recent appeal. Investors are also beginning to worry about the impact of massive flooding in much of the U.K. on the outlook for growth and BOE monetary policy," says Esiner.