GBP/EUR Touches 1.28 Again - Could Best GBP/EUR Exchange Rate Levels of 2014 Be Delivered Soon?
- Written by: Will Peters
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It is a strong start to the new month for the British pound to euro exchange rate; the GBP/EUR is trading just below the key resistance level at 1.28 at the time of writing.
Strong Monday moves follow the 0.6% surge seen in the pound to euro (GBP/EUR) seen on Friday ensuring market participants are on track to see the best rates of 2014 reached provided upcoming UK data measures up to analyst expectations.
A high of 1.2876 was reached in early September representing the best exchange rate of 2014.
Driving the move in the pair is the collapse in the euro side of the equation with a corresponding renewed sense of optimism regarding the UK economy. Markets can no longer ignore the obvious - the Eurozone's economy's outlook is completely at odds with that of the UK.
News out of the German and French economies today have sparked a fresh round of selling as markets are forced to gear up for the introduction of European Central Bank (ECB) easing in coming months.
Following the's data we saw the following spike in the pound to euro exchange rate:
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Pound Boosted by Manufacturing PMI
UK Manufacturing PMI read at 53.2 for the month of October confirming UK manufacturing remains comfortably in expansion mode. Markets were a little more pessimistic with their forecasts for a reading of 51.4. Such a large beat in expectations suggests future data points may also be under-estimated.
If so, then we could see the Bank of England bringing forward their first interest rate rise.
Euro Hammered on Economic Data
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.
Inflation data did not help the shared currency either.
"Euro zone inflation rose by a whisker in October but not by enough to call off the dogs at the bloc’s central bank on boosting stimulus. The euro fell below $1.26, and its touching of three-week lows put it less than a penny away from two-year low hit earlier this month," says Joe Manimbo, analyst at Western Union.
The preliminary inflation reading moved to 0.4 percent from 0.3 percent.
Unemployment, at 11.5 percent, held near record highs. Next week looms huge for the euro when the ECB will weigh in on the economic situation.
"After Japan’s big stimulus surprise, will the ECB be next?" asks Manimbo.
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.
Week Ahead, ECB and Payrolls Could Fire Further USD Gains
The upcoming week promises to be a busy one for FX markets.
The two headline events are the ECB policy decision and associated press conference on Thursday and the US payrolls report on Friday.
Greg Anderson at BMO Capital says:
"The market is already quite long of USD, but a firming of QE plans by Draghi and another strong US number could induce further USD upside.
"In addition to these two events, Canada has its Labour Force Survey on Friday while the Minutes of the BoJ’s surprise rate cut meeting come out on Thursday. It’s probably just a risk factor, but we note that the US legislative election is Tuesday."
Sterling Sits Back - But Next Two Weeks Will Be Pivotal
Sterling held mostly above the fray and steadied around $1.60 against the greenback.
A heightened focus on Japan and the euro zone dimmed some of sterling’s vulnerabilities.
"Sterling has struggled to gain positive traction as more and more Bank of England officials voice concern about the economy and attempt to walk back rate hike expectations further into next year. Britain’s economy is due for a big checkup next week with figures due on manufacturing and services growth," says Manimbo.
The BOE will also be in focus with a meeting on Wednesday and Thursday.
But, the big test for sterling comes mid-month with the next installment of the quarterly inflation report (QIR).
Bank of England Monetary Policy Committee Members have been incresingly vocal regarding the need to keep interest rates low for as long as possible.
Sterling has found the going tough through much of October as a result.
However, we feel that the markets have become overly pessimistic on sterling and the risks are growing that GBP could shoot higher unless an overly-negative tone is struck by the Bank in the QIR.
