Pound Euro Exchange Rate (GBP-EUR) Losses Continue on Friday, 1.20 in Sight
- Written by: Gary Howes
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The British pound (GBP) was hammered by a rallying euro on Thursday afternoon in London. The losses have extended into Friday morning.
At 09:00 in London we see the pound to euro exchange rate is trading lower pct lower having reached 1.2080.
The long-term outlook that envisages a higher GBP to EUR exchange rate in 2014 has been called into jeopardy by the strength of the move that is currently underway.
Those concerned with the outlook of this currency pair should keep an eye on the solid support level at 1.20. That said, we believe the mid 1.20's is likely to form support.
(To lock in current exchange rates ahead of any potential negative moves please get in touch with an independent FX provider and protect yourself against further fluctuations. Doing so could deliver up to 5% more currency than you would get elsewhere).
It was less than 24 hours ago that we were calling the possibility of a test of 1.22 following yesterday's strong rally higher.
Why has the euro got stronger?
The reason the euro is so much stronger today lies with the European Central Bank (ECB).
The ECB has today decided to keep Eurozone interest rates unchanged; a move that was expected by markets.
But, currency traders were not expecting the ECB to be so optimistic and positive about the Eurozone economy's outlook.
In a post rate decision conference the President of the ECB, Mario Draghi, communicated that unemployment in the Eurozone is still high but it stabilised.
Further, the Eurozone believes that data in the past 4 weeks has come in on the positive side, which is highly questionable.
Nevertheless the message we are getting is clear - it is highly unlikely that the ECB will cut interest rates further this year.
Exchange rates shoot up
It is not just the pound euro exchange rate that is suffering at the moment, we see the dollar has lost about 0.8% of its value too.
Indeed, the entire EUR exchange rate complex is higher.
This will not please Eurozone exporters, such as the Germans, who will be nervous that a persistently strong Euro is hurting their chances of recovery.
By contrast, UK exporters will be happy that the British pound has not become yet more expensive.
Market roundup
Turning to the broader market place this afternoon, the following comes courtesy of Lee Mumford at Spreadex:
"Global equity markets ticked higher this morning, supported by diplomatic efforts to cool the crisis in Ukraine. However, markets soon traded of their highs following comments from European Central Bank president Mario Draghi.
"Both the Bank of England and ECB have kept interest rates on hold at record lows of 0.5% and 0.25%. The Dax fell following comments from Draghi who announced he would be willing to “take further decisive action if required”, an indication that no additional tools will be seen today.
"US jobless claims last week fell to a lowest level in three months, an sign companies are holding on to their staff even as cold weather threatens to slow the world’s largest economy. Jobless claims declined by 26,000 to 323,000, beating the 336,000 expected.
"Following a 10 percent jump yesterday, Arabica coffee dropped 2.2 percent to $1.9800 a pound. The weakening comes after the commodity rallied to a two year high as dry weather eroded prospects for crops in the top producer and exporter, Brazil."
