GBP to Euro Exchange Rate Slips, Sterling to US Dollar Could Sink Further
- Written by: Rob Samson
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Above: Against the US dollar we see GBP remaining under pressure.
The pound euro exchange rate saw a volatile session on Tuesday as the ECB cut interest rates while the pound dollar rate will see increased volatility on Friday.
We see the following rates on Friday:
- British pound to euro exchange rate is 0.01 pct higher at 1.2313. A high of 1.2399 was achieved over the past 24 hours.
- British pound to US dollar is 0.03 pct higher at 1.6812.
Outlook for the pound against the euro
The near-term direction in the pound sterling to euro rate came to a critical juncture on Thursday.
The ECB announced an expected cut to the refinancing rate from 0.25% to 0.15%. The deposit rate is now down to -0.1%. While the euro is lower the overall reaction suggests markets had expected the move.
"Long positioning and nerves around yesterday’s ECB meeting and today’s US payroll numbers may have discouraged GBP bulls of late, but as the dust clears we would expect the market to return to GBP, with the UK still showing the clearest strength of the major economies," say Lloyds Bank Research in a morning brief to clients.
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Outlook for the pound against the US Dollar
The U.S. dollar trades higher against most of the major currencies thanks to the reversal in U.S. yields.
The result has been the pound sterling to dollar exchange rate has edged lower over recent weeks and the outlook suggests this trajectory could run further.
"While there could still be some liquidation ahead of Friday's payrolls report, for the time being, the recent increase in U.S. yields should keep the dollar in demand," says Kathy Lien at BK Asset Management.
The US NFP data could disappoint which will ultimately play into the hands of GBP sellers say Lloyds: "last month’s sharp decline in the unemployment rate suggests the possibility of a rise this month, and the slightly weaker ADP report this week also suggests some downside risks."
"GBP finished among the best performers of the major currencies yesterday, and continues to be one of our preferred currencies to hold as long as risk appetite remains positive. UK data has continued to impress, and forward points still suggest upside scope for GBP/USD."
Equity Markets Trade in Mixed Fashion, Bank of England Decision Ahead
Turning to broader investment sentiment we see a mixed picture while the Bank of England decision is unlikely to be of consequence.
According to Sam Fox at spread betting firm Spreadex:
"Asian shares were mixed throughout the night as sentiment began to shift amid a drop to a 4-month low in China’s services sector.
"The May HSBC Services PMI figure came in at 50.7, a drop off from 51.4 in April however still above the contraction level of above 50.0."
"FX markets may get particularly choppy today as investors eagerly await the European Central Bank’s conference set to begin early this afternoon.
"The Euro is currently just trading off its lows ahead of the conference where Mario Draghi is set to make changes to the policies such as cutting interest rates.
"Heading into the European open, we are calling the FTSE 100 to open flat from yesterday’s closing price, however GBP Asset Purchase Facility and the official bank interest rate figures are due out at 12:00 which may be used as a catalyst by investors."
