GBP/EUR (GBP/EUR) and Sterling Dollar Exchange Rate Strength Remains Intact

At the start of the new week the following mid-market wholesale rates are observed:

• The pound to euro exchange rate (GBP/EUR) is 0.12 pct higher than seen at Friday's close having reached 1.2527.
• The pound to dollar exchange rate (GBP/USD) is 0.13 pct higher at 1.7035.

Please be aware that the above mid-market quotes are subject to a discretionary spread levied by your bank. An independent FX provider will however seek to undercut your bank's offer and in some instances can deliver up to 5% more currency on execution. To learn more, please read here.

Pound sterling to euro: EUR on the back-foot

The euro saw some frantic gains against sterling in the mid-week session as profit-taking set in.

The rise in GBP/EUR was ripe for a pullback and we believe the move lower was actually a positive step in the broader trend higher.

Of course, if you are an exporter a strong GBP will not be your cup of tea and any such declines will have been greeted with relief.

"The euro has had quite a flat week against sterling but gained ground against the US dollar which more to do with US news rather than Eurozone news," notes Charles Purdy at Smart Currency Exchange.

The IMF has meanwhile been quoted as saying that the ECB would need to move to full-scale quantitative easing if inflation in the euro zone remains in the doldrums

The IMF believes that “this would boost confidence, improve corporate and household balance sheets and stimulate bank lending.”

If the ECB were to take heed of the IMF and engage in quantitative easing then be under no doubt - the euro pound exchange rate will collapse further.

Pound dollar exchange rate: GBP/USD at highest since August 2008

The greenback fell for a second day against the euro, the first back-to-back declines this month, while sterling climbed to its highest since August 2008 as the US Federal Reserve cut the outlook for economic growth at their policy meeting.

However, those holding out for higher levels in the GBP/USD should be aware that major resistance levels are at hand, this could scupper any rally higher.

Luc Luyet, currency analyst at Swissquote Research says:

"GBP/USD continues to challenge the major resistance at 1.7043. A bullish bias is favoured as long as the hourly support at 1.6923 (18/06/2014
low) holds. Another support can be found at 1.6882 (27/05/2014 high)."

Ultimately, analysts continue to favour a higher GBP against the USD as all technical indicators are seen in bullish territory.

Above: GBP/USD at a critical multi-year resistance level.

Pound rallies against Norwegian Krone

Big moves have meanwhile been observed against the Norwegian Krone (NOK) with GBP/NOK rallying after the Norges Bank surprised the market by aggressively downgrading its expectations for the key policy rate path in yesterday’s monetary policy report.

"Recent appetite for yield has meant that speculative positioning was long NOK, and there may yet be some further unwinding of long positioning as a result," says a note from Lloyds Bank Research.

However, Norges Bank’s rate path looks a little too dovish in our view, and the current sell off should consequently create a medium term NOK buying opportunity.