Euro to Pound Sterling Exchange Rate (EUR/GBP) Forecast to Weaken Towards 0.7755

The previous week was been an important one for the pound sterling - it shot higher against a host of major currencies on expectations that UK interest rates are due to rise towards the end of the year.

On Wednesday the key pound rates are holding at the following levels following the release of the Bank of England MPC Minutes for June:

• The pound to euro exchange rate is 0.1 pct lower than at last night's close at 1.2512.
• The pound to dollar exchange rate is 0.08 pct lower at 1.6950.
• The pound to Australian dollar is 0.09 pct lower at 1.8158.
• The pound to Canadian dollar is 0.04 pct lower at 1.8424.

If you are holding out for better rates, or afraid of a further deterioration in the FX pair you are watching, then consider getting an independent FX firm to help set up a risk management strategy. They will also be able to deliver up to 5% more currency than your bank would typically deliver on execution.

The most important statement on UK monetary policy and for sterling in recent months were delivered on Thursday the 12th when Bank of England Governor Mark Carney spoke at the Mansion house dinner.

He repeated the standard view that the UK economy had still scope to growth without pushing up inflation.

"Even so, he said that the decision on the timing of the first rate hike is becoming more balanced and that IT COULD HAPPEN SOONER THAN MARKETS CURRENTLY EXPECT!" notes Piet Lammens at KBC Markets.

This is in contrast with the tone of Carney since he became chairman of the BoE last summer. Until now he always tried to convince markets that the BOE will keep rates low as long as possible.

"So, this is really a game-changer for monetary policy and for sterling. EUR/GBP drop below the 0.8000 mark overnight. Cable jumped north of 1.69 and the 1.70 barrier is again on the radar," says Lammens.

Construction output was the only UK data due out following the Carney event, but sterling investors will barely look at it, as Carney’s remarks will oblige them to do some repositioning.

Earlier this week sterling had already a good run, especially against the euro, however after the Carney comments there is even less reason to row against the tide reckons Lammens.

The analyst says:

"It will push the front end of the UK yield curve higher and thus support sterling further. We have a long-standing EUR/GBP negative bias and keep this in place.

"The 0.7755 2012 low is the next high profile target on the cards. With a little help from euro weakness, this target might come within reach sooner than expected until now.

"Cable is heading to the 1.70 level. The picture in this cross rate has improved, too and a break is well possible especially as the dollar isn’t really in good shape. However, in a longer term perspective, we are more neutral on the upside potential for cable."

Weekend economic and business news snapshot

• Rising rates nothing to be ashamed of, says Bank veteran: For Sir Charlie Bean, the retiring Deputy Governor of the Bank of England, the past year has brought an obvious benefit. The arrival of a new Governor meant an end to the dreadful coffee endured by the Bank’s senior staff for generations.
• BT pension deficit poised to rocket: BT is braced for a substantial jump in its annual pension payments following a health check of Britain’s biggest private sector retirement plan.
• Debenhams sizes up Finance Chief: The former Finance Director of the fashion chain New Look is among a handful of candidates competing for a key job at Debenhams, which issued a painful profit warning after Christmas.
• TSB boosted by Carney threat of interest rate rise: The likelihood of an imminent jump in interest rates has pumped up the value of TSB ahead of the high street bank’s stock-market float.
• Returns to sender: A young Scottish firm that helps retailers to identify unpopular products has raised funds to expand its team and win more clients.
• Bidder sues in row over nuke clean-up: Britain’s Nuclear Decommissioning Authority (NDA) bungled the award of a £7 billion contract to clean up a dozen nuclear power sites, a jilted bidder has claimed in a High Court writ.