GBP/EUR Exchange Rate on Cusp of its 2015 Best Breaks 1.40 Resistance Line

The GBP-EUR exchange rate could be about to deliver fresh highs, but a key resistance zone must be convincingly broken and maintained first.

Those using the British pound to fund euro purchases are presently looking at a decent time to do so, recent trade has pushed the pound to euro conversion back towards the best levels of 2015. The maximum achieved in 2015 lies just above 1.42 and while there is some way to go before we reach this point momentum does look promising.

The only trouble is that the currency pair has a tendency to fail at levels above 1.40 as many traders in the market see this exchange rate as being simply too expensive to chase higher. For now the currency is above this point, but we will be watching whether it can be maintained over coming hours and days to convince us it is comfortable enough to sustain attacks on 1.42.

Be warned though - there does remain the possibility of GBP-EUR slipping back to much lower levels should 1.40 fail:

“The latest price action for the UK currency shows that a degree of resistance has developed around last month’s intermediate highs, at 1.40 or so, and this has led to a minor pull-back (again, on expectations that the first interest rate rise will occur in early 2016 at the earliest). Further choppy trade looks likely in the would expect to see support at the recent low, at around 1.34,” says Bill McNamara, a trader at brokers Charles Stanley.

Keep in mind that all quotes in this article reference the inter-bank spot rate. Your bank transfer will affix a spread at discretion. Independent providers are however able to get you closer to the spot market rate, in some cases this can deliver up to 5% more currency.

Why the Outlook Favours the British Pound

For the UK currency actions at the Bank of England on interest rates will remain of prime concern. Higher interest rates tend to lead to higher exchange rates as global money pours  into those economies that offer investors higher yield.

Bets are on that the Bank of England is eyeing the first of a series of interest rate rises in early 2016. Confirmation that this target will be met was confirmed on Wednesday the 20th via the release of the minutes of the meeting held by the Bank of England’s interest rate setting committee earlier in the month.

One sentence in particular leapt out at traders:

"For two members, the immediate policy decision remained finely balanced between voting to hold or raise Bank Rate. While there was a range of views over the most likely future path for Bank Rate, all members agreed that it was more likely than not that Bank Rate would rise over the three-year forecast period."

So, members are now starting to shift towards raising rates. If we were to see a third and then a fourth member follow suit markets could well chase the pound higher against the euro on anticipation of that interest rate rise.

This could well be the catalyst that delivers fresh highs for those hoping on better exchange rates.