Euro Pound Exchange Rate Forecast to Recover to 0.8320
- Written by: Gary Howes
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While the pound sterling is forecasted to outperform the euro in 2014 we note that the short-term technical outlook has swung in favour of the shared currency on Tuesday morning.
The euro pound exchange rate (EUR/GBP) has been boosted to the tune of a quarter of a percent and has climbed to 0.8223. The pound to euro exchange rate is trading at 1.2161.
The boost comes as UK inflation data was shown to have fallen faster than expected in the month of January.
Yesterday we reported on further forecasts concerning the pound euro exchange rate that would see robust gains delivered through 2014; however today's correction has altered the short-term forecast to favour the euro.
(Note: All EUR quotes here refer to the wholesale spot market. Your bank will charge a spread at their discretion when passing on a retail rate. However, an independent FX provider is so well placed on the market that they are able to deliver you up to 5% more currency. Please learn more here.)
Later this week, there are still several important eco data on the UK calendar with the labour market data and the Minutes of the February BoE meeting (Wednesday), the CBI orders (Thursday) and the retail sales (Friday).
"These data will give an accurate update of the UK economic recovery. Some data (e.g. retail sales) are expected less buoyant than last month. Interesting to see whether this will slow the ascent of sterling," says Piet Lammens at KBC Markets.
Commenting on the cessation of the euro's downtrend against the pound is ICN Financial:
"The pair managed to stabilise above 0.8160 and trading positively in attempt to stabilise above the Falling Wedge support once again. The pair now finds support from Stochastic over daily basis and supports the upside move for today.
"The upside targets start at 0.8285 then 0.8320 and breaching the latter will be the critical upside factor for the extension of the upside move toward 0.8410 then 0.8560. Chances for upside gains remain valid as far as the pair holds above 0.8160."
Euro continues to outperform
In addition to today's GBP-negative inflation data, the euro pound exchange rate has also pushed higher on the back of a firm euro.
The EUR continues to outperform most expectations, and even though the data remains substantially weaker than UK or US data, the case for further EUR strength remains because of the natural flow into the EUR underlined by the current account surplus, the latest data on which is reported today.
"This flow is more important when speculative activity is moderate and natural flow is dominant, so the EUR18bn or so a month that flows into the Eurozone current account becomes relatively more significant," note Lloyds Bank Research.
Lloyds say that over the long run, movements in the current account and the basic balance of the Eurozone do have a consistent impact, and currently still suggest some upside risks for the EUR.
"The ZEW data today should also be EUR supportive. 1.3740 looks like major resistance in EUR/USD, but we would still expect the EUR to retain a firm bias," say Lloyds.
A look at the latest Eurozone data shows the ZEW Survey - Economic Sentiment (Feb) - came in at 68.5, markets had expected 73.9.
The German ZEW Survey - Current Situation (Feb) - improved to 50, markets had expected 44.
British pound hit by falling inflation
Released in the morning, the UK’s CPI y/y fell to 1.9%, below the BoE’s 2.0% target.
Although the inflation figures gave reason to Carney’s fears about the “undershooting” inflation, the sell-off has been limited to roughly 30 pips.
"GBPUSD eased below the former year high of 1.6668 yet didn’t damage the key technical indicators. MACD remains comfortably bullish, option bids trail above 1.6700 ahead of tomorrow’s jobs data," notes Ipek Ozkardeskaya at Swissquote Bank.
The three-month unemployment rate for December is due tomorrow.
Markets expect the jobless rate to remain unchanged at 7.1% in Dec, in line with BoE’s expectations of reaching the 7.0% (meaningless) threshold by January. Any positive surprise is likely to revive bets on hawkish BoE and boost GBP-bulls.
Although Governor Carney clearly stated in his speech last week that the 7.0% level is nothing more than an indication; markets will say the last word on GBP levels.
