GBP/EUR Rate Attempts Best Exchange Rates of 2014 Are Back in Reach
- Written by: Sam Coventry
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Pound Euro Rate Today: The British pound (GBP) has recovered the ground it lost to the euro through the course of what was a poor October.
Heading into November we note that sterling is determined to reach, and perhaps exceed, its best exchange rate against the euro of 2014.
GBP is currently seen as a better investment than the EUR and made small net gains on the release of FOMC minutes mid-week - a release that prompted heavy all-round euro selling pressure.
It is worth noting though that the strength seen on Friday could be month-end related. The real test for the currency pair comes in the first week of November when the next set of PMI data releases come.
Pound and euro today (markets closed @ weekend):
- The pound to euro exchange rate (GBP/EUR) is 0.00 pct higher on a day-to-day basis at 1.2779.
- The euro to pound exchange rate (EUR/GBP) is at 0.7827.
The above quotes are taken from the global FX spot market. It must be noted that your bank will widen the spread on the above numbers when passing on their retail rate to customers. An independent FX provider will however guarantee to undercut the bank's offer thus delivering you more forex. Please see more on this here.
Why is the Euro Being Sold Today?
The euro has plunged on news that German Retail Sales posted a sharp decline of 3.2%. This marked the sharpest decline since October 2007. The markets had expected a decline of 0.8%.
French Consumer Spending fell 0.8%.
In short sentiment on the Eurozone's two leading economies has deteriorated sharply.
Markets will be betting that this poor data will ultimately pave the way for agressive easing action to be announced at the European Central Bank in coming months.
November's Big Event for GBP
It is the Bank of England which now has the potential to surprise. Markets have been developing an assumption that UK rate rises are being pushed back further. A lot of this is based on the various speeches made by members of the Bank's Monetary Policy Committee over recent weeks.
However, there has been no official and concrete communications from the Bank itself.
This tells us that:
1) There is the chance for the bank to be quite flexibile if data releases remain strong
2) The key risk in this regard comes on the 14/11 when the next quarterly inflation report at the BoE is released.
Our feeling is sterling exchange rates will be hit by volatility next week when the next round of PMI's are released, before a gradual squaring of positions ahead of the all-important inflation report.
Who Will Win in November - The Pound or the Euro?
Note that November is traditionally a weak month for sterling, as we reported earlier, as seasonal headwinds tend to blow.
Nevertheless, coming months promise to be equally uncomfortable for the euro exchange rate complex.
The thorn in the side of the euro at present is the European Central Bank (ECB) who have made it quite clear that they are looking to throw yet more money at the moribund Eurozone economy.
Increasing the money supply inevitable weighs on currencies as an oversupply tends to dampen prices (supply and demand 101).
Analysts at BNP Paribas see this scenario coming and have told clients they are looking to sell the euro:
"The Fed’s hawkish comments on the labour market has provided a signal that the market has pushed back too far its expectations of the first Fed rate hike.
"We think markets will ultimately bring rate hike expectations much further forward to reflect a Q2 rate hike, providing support to the US yields and the USD," BNPP argues.
"Going forward we expect the G10 theme of central bank divergence is likely to gain traction – tomorrow the BoJ may announce a new 2015 target for monetary base and next week’s ECB press conference will be in focus."
In line with this view, BNPP recommends long USD/JPY in options ahead of BoJ and looks for opportunities to sell the euro.
What Does Does the Technical Outlook for the Euro vs Pound Look Like?
The picture facing near-term direction in the euro to pound exchange rate is difficult to call at the present time.
However, turning to the longer-term picture we hear that most analysts are confident that the pound will advance.
Piet Lammens at KBC Markets is one of those analysts who have confirmed he is maintaining the view that the trend in EUR/GBP stays downward longer term.
Short-term, though the trend shows signs of fatigue acknowledges Lammens. The 0.7850/0.7755 is a tough support, key resistance stands around 0.8066.
Luc Luyet at Swissquote is also inclined to back the pound over the euro in the longer-term:
"The underlying downtrend favours a test of the major support area between 0.7755 and 0.7694 at minimum. A decisive break of the resistance at 0.8034 is needed to suggest some exhaustion in the medium-term selling pressures."
