GBP/EUR Exchange Rate (GBP/EUR) Slumps Lower With Month-End Rebalancing Favours the Shared Currency

At the time of writing the British pound to euro exchange rate (GBP/EUR) is trading 0.09 pct lower on a day-to-day basis having achieved a rate of 1.2615. (As we update this piece at the close of the day we are seeing sterling recover, confirming suspicions on month-end rebalancing).

Please note that this quote is taken from the wholesale markets; your bank will affix a spread to the rate at their discretion. However, an independent FX provider will guarantee to undercut your bank's offer, thereby delivering up to 5% more currency in some instances. Find out more.

Month-end flows hit GBP/EUR

"Month-end portfolio flows are expected to be relatively neutral with the exception of against EUR, where flows are expected to be EUR/USD positive," say Lloyds Bank Research.

We will wait for rebalancing to play out before drawing any fresh conclusions on the future direction of the pound euro at this stage.

We would expect any weakness to be short-lived at this stage.

With the UK economy now back on track and above the pre-global recession peak, it is likely that we will see sterling confidence remain in the whole.

"It is however possible that we could see some added volatility if caution continues to kick in," warns Amin.

Prospects for the euro remain poor

The US dollar is on the move at present with currency markets pricing in interest rate rises at the US Federal Reserve in 2015.

The preference for USD at the moment appears to be sucking funds out of the Euro driving the EUR/USD down to 8 month lows.

The impact of this will of course also be felt in the euro pound exchange rate which will unlikely find any major impetus in the near-term.

With some fundamental data out of the eurozone later in the week, we expect the euro to remain fairly vulnerable to downside risk.

"There is still a large degree of uncertainty surrounding the situation in the region with regards to inflation and the effect that the rates cuts has had on economic recovery. If inflation data shows no sign of improvement, we very much expect there to be added pressure on the ECB to introduce further measures and offer further support," says Amin.

Euro dollar rate in 8 month slump

The euro was stuck near an eight-month trough against the greenback ahead of a very busy economic schedule this week that could see the single currency test its recent lows.

"While euro zone unemployment and inflation data will headline the calendar in the 18-member bloc, U.S. events and reports will likely cause the biggest waves. Indeed, a euro zone CPI reading below June’s 0.5%(y/y) would likely bring in the timeline for another round of monetary easing from the ECB. Still, the euro is likely to remain vulnerable, especially if U.S. payrolls on Friday signal that America’s labor market improvement is accelerating," warns Omer Esiner at Commonwealth Foreign Exchange.