GBP/EUR Exchange Rate in Impressive Comeback

The British pound (GBP) has had a tough month already - but the past 24 hours have been interesting with the GBP's Downtrend vs the EUR being halted.

The euro is under the hammer in the European session as bond yields in peripheral countries such as Italy, Spain, Portugal and Ireland leap.

Meanwhile Greece has seen the cost of its debt surge in signs that the bad-old-days of the Eurozone crisis could be returning.

Some big names in foreign exchange pressed the sell button the euro mid-morning prompting something of a 'flash crash' in the shared currency. The dip for GBP/EUR could be over.

These are volatile times and those with FX requirements should ensure they have the correct protective stop and buy orders in place.

Meanwhile, the USD has started to benefit from fresh safe-haven buying interest in the current environment:

• The pound to euro exchange rate (GBP/EUR) is 0.48 pct higher at 1.2539.
• The pound to dollar exchange rate (GBP/USD) is 0.15 pct lower on a day-to-day basis at 1.5997.
• The pound to Australian dollar rate (GBP/AUD) is 1.11 pct higher at 1.8347.
• The pound to Canadian dollar rate (GBP/CAD) is 0.52 pct higher at 1.8127.

Beware: The above are spot market quotes, your bank will affix a discretionary spread to the figures. Note that an independent FX provider is able to provide up to 5% more currency in some cases by getting closer to the market and ensuring the correct market-beating orders are in place, learn more.

Employment Data Improves, Helps Prop up GBP

The British pound rose off of an 11-month low against the dollar overnight as a batch soft U.S. data prompted some profit taking in the pound’s recent bad run.

"News that U.K. firms added 46,000 new workers in August, the slowest pace of jobs growth in roughly a year, did little to bring in the timeline for eventual BOE monetary policy normalization, despite the fact that the nation’s unemployment rate fell to 6.0%. The global market turmoil and mounting risk of recession in the euro zone have added to the uncertain outlook for the timing of the BOE’s rate hike," says Omer Esiner at Commonwealth Foreign Exchange.

We have a sense that markets are intent on staying cautious on the pound until there is clear guidance from the Bank of England on when it intends to raise rates.

Furthermore, the recent sell-off appears to be overdone, particularly against the euro. We would be surprised if any significant sell-off were to take place in the near-term.

Inflation Data Punishes Sterling

The week will however be remembered for the savage sell-off in GBP following the release of some soft UK inflation numbers.

"Sentiment towards GBP remains relatively soft, with expectations for the first UK rate hike continuing to be pushed back. The OIS curve suggests this is now priced in for around July 2015," points out Lloyds Bank Research in a note to clients, summing up just why the sterling is being hurt.

Dennis de Jong, managing director at UFX.com says:

“Although this further fall in inflation will be welcomed by the man on the street, earnings stubbornly refuse to rise and people aren’t feeling the benefit in their pockets yet.

“Whereas unemployment was the original benchmark for Mark Carney raising interest rates, it is now the extent and speed of wage growth which is going to be the key determining factor.”  

This provides us with an interesting scenario; if inflation is falling then conceivably the pressure placed on pay rises to lift the living standards of UK residents recedes.

Thus, we would see Wednesday's wage growth data as having the potential to reverse the current declines being witnessed in GBP.

Meanwhile, we keep an eye on oil prices.

As RBS note: "UK inflation falling, along with the oil price. Good news for consumers and energy intensive business."

Could it be that GBP will soon be driven by oil price moves?

Interesting if this is to be the case moving forward.