Pound euro exchange rate (GBP/EUR) forecasted to trade yet higher provided unemployment rate falls sufficiently

By Rob Samson

For the past few sessions the pound euro exchange rate has been trading marginally above the 1.21 mark. However, with confidence continuing to build regarding the UK outlook, we could see the pound make a move towards 1.22.

Today's Eurozone data failed to aid the EUR and the case for favouring sterling is still strong and provided UK data produces decent results, we see the pound sterling retaining control.

The pound to euro exchange rate is trading 0.37 pct higher, on a day-to-day basis, having reached 1.2168 in early afternoon trade in London.

Note: Our EUR quotes are taken from the wholesale spot markets. Your bank will charge a spread at their discretion when passing on a retail rate. However, an independent FX provider is so well placed on the market that they are able to deliver you up to 5% more currency. Please learn more here.

Eurozone data fails to provide Euro with support

A lower-than-expected reading of German ZEW economic sentiment sent the euro lower overnight.

The closely watched indicator undermined the appeal of the single currency and underscored the notion that while the Fed continues to reign in monetary stimulus, the ECB will either keep policy in the 18-member bloc very accommodative or even stimulate growth further.

Markets bullish ahead of Bank of England, unemployment data

The British pound is meanwhile due to come under scrutiny over the course of the next 24 hours owing to the release of UK unemployment figures and the January Bank of England MPC minutes.

The minutes are not expected to have an impact on currency markets, however the release of the unemployment rate will be closely watched.

There are a number of traders and analysts out there who are predicting the rate will fall to 7.2% - another step closer to the Bank of England's target of 7%.

Should this forecast be proven to be correct then expect the British pound to rally yet further against the euro.

The pound to euro exchange rate is currently at levels not seen since the 10th of January 2013 and the outlook from here remains positive.

IMF upgrades UK's growth prospects

A few note-worthy developments during the course of Tuesday’s trading day; the IMF raised global growth forecasts, as expected – the organisation expects the world economy to expand by 3.7% in 2014 versus 3% it estimated last year.

As expected, the IMF bumped up the UK’s economic forecasts to 2.4% in 2014 from 1.7% in 2013. It expects US growth to rise to 2.8% this year versus 1.9% last year, Japan to stay steady at 1.7%, the euro zone to grow to 1% and China to ease to 7.5% this year from 7.7%.

"Ambitious upgrade for euro zone growth this year to 1% gives the bull something to cheer about but the caveat to all of this is that the threat of deflation remains high for developed countries. The IMF echoed the World Bank’s report last week that weaker emerging economies are exposed to capital outflows as developed nations expand and the Federal Reserve continues to taper this year," says Ishaq Siddiqi at ETX Capital.