GBP/EUR Bullish Again but Outlook Remains Cloudy

The pound to euro exchange rate (GBP/EUR) may have seen its recent weakness finally come to an end, but the outlook remains challenging.

• "At the recent low of 1.356 sterling appears to have found support in the form of its 50-day moving average" - Bill McNamara @ Charles Stanley. 
• "With the UK election season beginning in earnest with David Cameron dissolving parliament, the pound wasted no time in posting losses as sterling’s jitters continued" - Connor Campbell @ Spreadex.

Those holding out for a higher GBP-EUR exchange rate will be disappointed as the British pound has fallen from a best of 1.4256 reached on the 11^th of March to a low of 1.3540 reached on the 25^th of March.

The stronger performance by the shared currency occurred right across the board and comes after a period of protracted selling pressures.

The offering of the euro ultimately had to reach an end and a much-needed rebalancing of the markets saw the unit rise against most major trading partners.

As we step into the new month the currency pair is trading at 1.3677, off its lowest point, suggesting to us that a base to the recent declines may have finally been achieved.

Sell-Off May Have Reached its Conclusion

What does the outlook hold for sterling euro and can we expect lower exchange rates?

Technical analyst Bill McNamara at brokerage Charles Stanley has consulted the charts and notes the 50 day moving average appears to have coincided with the cessation of selling pressures.

In a note to clients at the end of March McNamara says:

“The UK currency recently traded up to a multi-year high of 1.415 relative to the euro but at that level it had retraced fully 50% of the decline that began some 15 years ago and, as the chart illustrates, this has been followed by a not-insignificant bout of profit-taking.

“At the recent low, however (of 1.356) sterling appears to have found support in the form of its 50-day moving average and this the sell-off might have reached a conclusion.”

(Please note that all FX quotes here are from the wholesale markets - your bank will affix a spread to the rate to derive profit. However, an independent FX provider will undercut your bank's offer, this can deliver up to 5% more currency in some instances.)

GBP Entering a Period of Instability

Those with sterling-based currency requirements should be aware that the normal rules will likely not apply in coming weeks.

Market analysts are expecting a spike in GBP volatility as we move through the UK electoral programme which will culminate with the May general election. (Connor Campbell asks - which party, Labour or the Conservatives, is best for the pound).

Be aware that stability will however only be likely once a stable government is in place.

“The weekend papers highlighted Labours lead in the opinion polls which would be good for our continued membership of the European Union. I am sure, as we saw with the Scottish vote on Independence, there are likely to be many twists and turns in the next few weeks, probably matched by sharp movements in sterling,” says Carl Hasty at Smart Currency Business.

Those with large currency payment needs should therefore ensure they have the appropriate risk management programmes in place with their provider as we head into summer.

"With the UK election season beginning in earnest with David Cameron dissolving parliament, the pound wasted no time in posting losses as sterling’s jitters continued to become more pronounced. The pound spent much of last week trading blows with the dollar, and this looks set to continue; however, as the election approaches sterling looks less likely to see the kind of rebounds it underwent last week,” says analyst Connor Campbell at Spreadex.