Pound heads lower once again; but why? It is all about the 'carry trade' says one analyst

The pound to euro exchange rate is 0.24 pct in the red at 1.1730.

NB: The above is a wholesale quote; your bank will affix their own discretionary spread to the number. However, an independent FX provider will guarantee to beat your bank's offer, thus delivering you more currency. Please learn more here.

As positive economic data releases roll in we are left wondering why the pound sterling is not achieving higher levels against the euro.

Richard Driver at Caxton FX today acknowledges sterling's inability to crack the 1.18 level against the euro:

"Yesterday’s UK labour market update revealed a seventh consecutive monthly decline in unemployment claims, while the unemployment rate remained steady at 7.8%. Meanwhile, the average earnings data revealed some decent wage growth, which is good news for UK households.

"€1.18 once again proved too tough a nut to crack however, and we are back down below €1.1750."

So why is the pound to euro exchange rate unable to break higher?

According to one analyst, Piet Lammens at KBC Markets, the explanation for today's renewed decline in GBP/EUR lies with a phenomenon called the carry trade.

Lammens tells us:

"Yesterday morning, it looked as if EUR/GBP would finally be able to move away from the 0.8500 area. Sterling was well bid in the run-up to the UK labour market data.

"Jobless claims declined more than expected and, maybe even more important, earnings were also better/higher than expected.

"If confirmed in the coming months, especially the latter could be important to bring growth on a self-sustainable path.

"EUR/GBP dropped to the 0.8470 area. Cable came within reach of the recent correction top and set a minor new high on global dollar weakness later in the session.

"However, for now the global repositioning/unwinding of carry trades is more favourable for the euro than for sterling.

"So, as this trend restarted later in the session, EUR/GBP returned to the 0.8500 area. The pair closed the session at 0.8506, compared with 0.8510 on Tuesday evening."