British Pound (GBP) Crashes 0.6% vs Euro Thanks to Draghi
- Last Updated: 03 April 2014
Updated: The GBP exchange rate complex has come under pressure once 
more at the start of April with the entire Markit PMI series missing the mark. However, many analysts continue to consider the latest price action as being representative of consolidative price action.
April will be pivotal for the UK unit - can the uptrend reassert itself or will we continue to see more of the same?
Keep in touch with our Live Coverage Here. For the archived material for the day in question please scroll through please scroll down.
By Rob Samson
Today's Pound Sterling Exchange Rates.
1.2024
EUR 1.2532
USD 1.9231
AUD 1.7483
CAD 2.1478
NZD 22.7019
ZAR15:41: Pound under significant pressure
Sterling is seeing heavy losses across the board. But amidst the madness, remember the fundamentals are still on the side of GBP. As noted by Omer Esiner at Commonwealth Foreign Exchange:
"Still, the pound remains near multi-year highs against many of its major rivals. Investors expect that mounting signs of economic recovery in the U.K. will lead the Bank of England to begin raising lending rates early in 2015, well before other major central banks. That outlook should keep the pound well supported going forward, especially if upcoming readings of U.K. unemployment continue to improve."
"Still, the pound remains near multi-year highs against many of its major rivals. Investors expect that mounting signs of economic recovery in the U.K. will lead the Bank of England to begin raising lending rates early in 2015, well before other major central banks. That outlook should keep the pound well supported going forward, especially if upcoming readings of U.K. unemployment continue to improve."
15:14: Sterling losses to extend further
Don't expect March to be a good month for the £. The following concerns the GBP/CAD as seen through the eyes of TD Securities:
"Sterling/CAD is under a little more obvious pressure today—the market has been blocked around 1.8550/55 and short-term trend support (since the start of the year) is yielding to pressure today. Trend momentum is weaker but still bullish but a soft close today (below 1.8450) will likely see GBP losses extend a little further at least. We still rather think the market trend is higher though and we look for relatively limited losses overall. Key support is still distant at 1.7966."
"Sterling/CAD is under a little more obvious pressure today—the market has been blocked around 1.8550/55 and short-term trend support (since the start of the year) is yielding to pressure today. Trend momentum is weaker but still bullish but a soft close today (below 1.8450) will likely see GBP losses extend a little further at least. We still rather think the market trend is higher though and we look for relatively limited losses overall. Key support is still distant at 1.7966."
13:50: GBP/EUR crashes by 0.6%
The EUR is powering ahead taking the GBP/EUR lower by 0.6% to reach the 1.20's again.
The dollar is lower by the same margin.
The reason is the ECB's Mario Draghi who is giving a press conference. He is sounding really optimistic about the outlook for the Eurozone and as such markets are reading this as a sign that the loosening period is over.
Currency markets are readjusting for the new reality.
The dollar is lower by the same margin.
The reason is the ECB's Mario Draghi who is giving a press conference. He is sounding really optimistic about the outlook for the Eurozone and as such markets are reading this as a sign that the loosening period is over.
Currency markets are readjusting for the new reality.
12:50: Euro higher as ECB keeps rates unchanged
So no surprises from the ECB today. All eyes are now on the press conference in about 40 minutes from now.
Sterling is now 0.21 pct lower vs EUR at 1.2151.
Sterling is now 0.21 pct lower vs EUR at 1.2151.
12:20: £ $ at 1.68?
More from Kathleen Brooks, the following technical forecast is noted:
"The uptrend remains in place after last week’s sell-off. GBPUSD managed to bounce off support at 1.6605 – the 38.2% Fib retracement of the February advance, and the daily MACD remains above the zero line, which suggests that momentum is to the upside.
"Thus, if we can clear 1.6769 – the high from 28th Feb, we could see back to 1.6823 – the high from 17th Feb. Above here opens the way to 1.7043 – the high from August 2009, and a key psychological level."
"The uptrend remains in place after last week’s sell-off. GBPUSD managed to bounce off support at 1.6605 – the 38.2% Fib retracement of the February advance, and the daily MACD remains above the zero line, which suggests that momentum is to the upside.
"Thus, if we can clear 1.6769 – the high from 28th Feb, we could see back to 1.6823 – the high from 17th Feb. Above here opens the way to 1.7043 – the high from August 2009, and a key psychological level."
12:18: Fundamental picture remains supportive to GBP
The following from Kathleen Brooks at Forex.com:
"The fundamental backdrop for the UK is still GBP supportive for the pound, and yesterday’s better than expected PMI has helped GBPUSD to climb above 1.6700. Looking ahead the biggest event risk for GBPUSD for the rest of this week could be external events including the ECB meeting and the US labour market report released tomorrow.
"A weak NFP report could weigh on USD and boost GBP; likewise if Draghi sounds concerned about the strength of the EUR this could weigh on EURGBP, giving sterling an overall boost."
"The fundamental backdrop for the UK is still GBP supportive for the pound, and yesterday’s better than expected PMI has helped GBPUSD to climb above 1.6700. Looking ahead the biggest event risk for GBPUSD for the rest of this week could be external events including the ECB meeting and the US labour market report released tomorrow.
"A weak NFP report could weigh on USD and boost GBP; likewise if Draghi sounds concerned about the strength of the EUR this could weigh on EURGBP, giving sterling an overall boost."
12:01: Bank of England unchanged
No surprises from the Bank of England. The event that could surprise still lies ahead - the ECB. The decision is at 12:45, and the press conference at 13:30.
11:41: GBP still flirting with 4 year highs vs USD
Ahead of the Bank of England decision at mid day it is worth remembering we are still witnessing high levels in the GBP-USD.
A note form payments firm Afex says:
"GBP was 0.6% from the strongest in four years against the USD before the Bank of England announces its monetary policy decision today at the end of a two-day meeting.
"Economists predict the central bank will keep interest rates unchanged at a record-low 0.5%, where they have been since March 2009. Policy makers will also maintain the bond-purchase target at £375 billion according to a separate survey. U.K. Government bonds declined. The pound strengthened yesterday as a report showed services expanded last month."
A note form payments firm Afex says:
"GBP was 0.6% from the strongest in four years against the USD before the Bank of England announces its monetary policy decision today at the end of a two-day meeting.
"Economists predict the central bank will keep interest rates unchanged at a record-low 0.5%, where they have been since March 2009. Policy makers will also maintain the bond-purchase target at £375 billion according to a separate survey. U.K. Government bonds declined. The pound strengthened yesterday as a report showed services expanded last month."
11:15: GBP struggles vs commodity currencies
Sterling is today suffering against the commodity dollars, the AUD and NZD in particular. It appears that losses here are adding weakness to the broader GBP complex.
"The antipodeans were the clear stars of the show in the currency market tonight with kiwi rising to a new 2014 high of 8471 while Aussie cleared the key 9000 barrier hitting fresh two week highs. The rise in the Aussie was driven by surprisingly strong economic data as both Retail Sales and Trade Balance numbers printed much better than expected," says Boris Schlossberg at BK Asset Management.
Read our report on the Australian dollar here.
"The antipodeans were the clear stars of the show in the currency market tonight with kiwi rising to a new 2014 high of 8471 while Aussie cleared the key 9000 barrier hitting fresh two week highs. The rise in the Aussie was driven by surprisingly strong economic data as both Retail Sales and Trade Balance numbers printed much better than expected," says Boris Schlossberg at BK Asset Management.
Read our report on the Australian dollar here.
10:41: ECB Inflation expectations to be lowered
UniCredit adopts the market stance of no-change at the ECB today. But inflation expectations may be lowered which could impact the EUR negatively:
"We expect the ECB to keep interest rates unchanged and suspend the sterilisation of SMP purchases. We also expect a new facility to provide long-term funding to banks conditional on lending, and a programme to buy senior tranches of ABS: if not today, these two measures may be announced within 2-3 months. The ECB is likely to revise down its CPI forecast for 2014, with the number for 2016 at 1.6-1.7%."
"We expect the ECB to keep interest rates unchanged and suspend the sterilisation of SMP purchases. We also expect a new facility to provide long-term funding to banks conditional on lending, and a programme to buy senior tranches of ABS: if not today, these two measures may be announced within 2-3 months. The ECB is likely to revise down its CPI forecast for 2014, with the number for 2016 at 1.6-1.7%."
10:41: ECB Inflation expectations to be lowered
UniCredit adopts the market stance of no-change at the ECB today. But inflation expectations may be lowered which could impact the EUR negatively:
"We expect the ECB to keep interest rates unchanged and suspend the sterilisation of SMP purchases. We also expect a new facility to provide long-term funding to banks conditional on lending, and a programme to buy senior tranches of ABS: if not today, these two measures may be announced within 2-3 months. The ECB is likely to revise down its CPI forecast for 2014, with the number for 2016 at 1.6-1.7%."
"We expect the ECB to keep interest rates unchanged and suspend the sterilisation of SMP purchases. We also expect a new facility to provide long-term funding to banks conditional on lending, and a programme to buy senior tranches of ABS: if not today, these two measures may be announced within 2-3 months. The ECB is likely to revise down its CPI forecast for 2014, with the number for 2016 at 1.6-1.7%."
09:54: Interest rate expectations to keep GBP upside contained
The UK economy may be on a strong footing, but further gains in the value of sterling are likely to be muted warns Lloyds Bank. The reason? Interest rate expectations. Despite the overheating property market and a growing economy the Bank of England simply won't budge on raising interest rates from all-time lows.
"The lack of any real prospect of an early change in interest rate expectations means GBP gains are likely to remain quite modest. The 0.8200 area is the main initial support in EUR/GBP, and a dovish message from the ECB meeting may be needed to trigger a break, which would target a move to 0.8150. In GBP/USD, expect the 1.6823 high to be threatened on a break of 1.6780." - Lloyds Bank Research.
"The lack of any real prospect of an early change in interest rate expectations means GBP gains are likely to remain quite modest. The 0.8200 area is the main initial support in EUR/GBP, and a dovish message from the ECB meeting may be needed to trigger a break, which would target a move to 0.8150. In GBP/USD, expect the 1.6823 high to be threatened on a break of 1.6780." - Lloyds Bank Research.
08:50: GBP-EUR momentum turns bullish
Overnight the pound to euro exchange rate charts confirmed short-term momentum has turned positive according to analysis issued by Recognia Inc. GBP-EUR closed at 1.2175, the Momentum signal is significant because it signals the strength of price trends, a healthy price trend tends to exhibit strong momentum.
08:47: GBP-USD delivers fresh Short-Term Bullish signals
The pound wants to rise higher against the US dollar in the short term; so say the charts. At last night's close of 1.6720 Cable gave us two technical indicators. A Short-Term Bullish MACD formed as did a fresh positive Momentum signal. Momentum is significant because it signals the strength of price trends. The below image comes courtesy of Recognia Inc:
08:15: ECB decision ahead - will there be a surprise?
Most analysts expect the European Central Bank (ECB) to keep policy on hold today. That does not mean there are no risks for the euro.
"We expect the ECB to ease monetary policy further tomorrow by cutting its policy interest rates, but it is a very close call given the mixed signals from recent data flow." - Thomas Harjes at Barclays.
If Barclays are right then we can expect a sharp decline in euro rates. There is also the risk that President Draghi talks the euro and EZ interest rates lower by adopting a 'bearish' tone - i.e gives a press conference in which the negatives of the Eurozone economy are emphasised moreso than the positives.
"We expect the ECB to ease monetary policy further tomorrow by cutting its policy interest rates, but it is a very close call given the mixed signals from recent data flow." - Thomas Harjes at Barclays.
If Barclays are right then we can expect a sharp decline in euro rates. There is also the risk that President Draghi talks the euro and EZ interest rates lower by adopting a 'bearish' tone - i.e gives a press conference in which the negatives of the Eurozone economy are emphasised moreso than the positives.
08:00: Halifax House Price data shows market is in real danger of overheating
Some data out of the UK economy this morning was undoubtedly £ positive. Data shows the UK housing sector is on a tear higher. Halifax House Prices (MoM) (Feb) rose 2.4% - analysts had only expected 0.7%. This is more than double last month's 1.1%.
Halifax House Prices (3m/YoY) (Feb) read at 7.9%, ahead of a predicted 7.2% and well above last month's 7.3%.
Will this data open the eyes of the Bank of England to a heating house market? No matter which way you cut it - house price rises at this pace are surely worrying.
Halifax House Prices (3m/YoY) (Feb) read at 7.9%, ahead of a predicted 7.2% and well above last month's 7.3%.
Will this data open the eyes of the Bank of England to a heating house market? No matter which way you cut it - house price rises at this pace are surely worrying.
Sterling's performance overnight
Yesterday was a good one for the British pound (GBP), the currency proved its resilience in line with a firm UK economy. Yesterday's Services PMI data reminded markets the UK economic recovery is well on track.
The British pound (GBP) is pretty much unchanged against the USD and EUR this morning. However, losses are seen against the NZD and AUD. The UK currency is also well off recent highs against the ZAR and CAD.
Today's positive trade in Asia and a positive start for European equities will be assisting the NZD, AUD, CAD and ZAR.
Ahead we have the Bank of England MPC decision on interest rates and quantitative easing. This is expected to be a non-event.
The British pound (GBP) is pretty much unchanged against the USD and EUR this morning. However, losses are seen against the NZD and AUD. The UK currency is also well off recent highs against the ZAR and CAD.
Today's positive trade in Asia and a positive start for European equities will be assisting the NZD, AUD, CAD and ZAR.
Ahead we have the Bank of England MPC decision on interest rates and quantitative easing. This is expected to be a non-event.
