Alert! Pound Euro Rate Surges 0.60%, But GBP/USD + EUR/USD Stutter as Dollar Strength Persists

Dollar, Pound and Euro Rates Today: Latest action from the exchange rate markets shows the US dollar has seen its impressive mid-week rally continue while the British pound has staged an impressive advance against the euro.

Looking ahead, we note markets may be a little shy when it comes to pushing the USD much higher, and as we note in this piece, it could actually be the GBP that offers the next big surprise in coming weeks.

With regards to the shared currency, one can't but help the long-term outlook looks poor. We discuss each currency in further detail below.

In the wake of the Fed decision we see:

Exchange rates today

1. The pound to euro exchange rate (GBP/EUR) is 0.58 pct higher on a day-to-day basis at 1.2763.
2. The pound to dollar exchange rate (GBP/USD) is 0.06 pct lower at 1.5994.
3. The euro to dollar exchange rate (EUR/USD) is 0.64 pct lower at 1.2532.

Beware: If you are looking for a higher rate make sure your currency specialist has placed the relevant stop-loss and buy orders in place to ensure you get the right rate when it is hit, find out how here.
Also Note, all the above levels are from the inter-bank markets - your bank will affix a spread at their discretion when passing on a retail rate. However, an independent provider will seek to undercut your bank, thereby delivering up to 5% more FX in some instances. Please find out more.

The euro rate today:

The euro has plunged on news that German Retail Sales posted a sharp decline of 3.2%. This marked the sharpest decline since October 2007. The markets had expected a decline of 0.8%.

French Consumer Spending  fell 0.8%.

In short sentiment on the Eurozone's two leading economies has deteriorated sharply.

Markets will be betting that this poor data will ultimately pave the way for agressive easing action to be announced at the European Central Bank in coming months.

The euro has dominated proceedings for much of the week - initially it rallied as investor sentiment recovers and the eurozone is looked upon more favourably.

The euro steadied above $1.27 against the greenback, its best level in a week, with the market spotlight decidedly on the left side of the Atlantic.

"The euro this week also caught a bit of a break in generally well-received results from European bank stress tests that showed the continent’s financial sector in reasonably sound shape. The euro’s façade of serenity could be deceiving, however, with top-tier data due from the euro zone Friday on inflation and unemployment, two of the strongest headwinds on the 18-country economy that have it on the brink of recession," says Manimbo.

The US dollar rate today:

The US dollar surged higher this week against the pound sterling after it was shown that the US central bank is on course to raise rates in mid 2015.

This contrasts to expectations concerning the Bank of England whose decision makers have been stressing the need to keep interest rates as low as possible for as long as possible - this has driven a wedge between the pound and dollar.

However, Lloyds Bank Research reckon the rate of gains in the USD could slow down from here:

"While we think the USD will remain supported, further gains may be difficult unless the sentiment towards the global outlook improves."

A Bullish Fed

What can we take away from the Fed's dollar-boosting statement?

In summary the Federal Reserve told us: 1) It ends Quantitative Easing 2) Upgrades labour market forecasts 3) Only one member, Kocherlakota, dissents 4) Does not lower its inflation assessment which markets had been expecting.

The crux of the pro-USD minutes reads, "Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing," reads the statement.

The Pound Rate Today - Looking Forward to the QIR:

It is the Bank of England which now has the potential to surprise. Markets have been developing an assumption that UK rate rises are being pushed back further. A lot of this is based on the various speeches made by members of the Bank's Monetary Policy Committee over recent weeks.

However, there has been no official and concrete communications from the Bank itself.

This tells us that:

1) There is the chance for the bank to be quite flexibile if data releases remain strong
2) The key risk in this regard comes on the 14/11 when the next quarterly inflation report at the BoE is released.

Our feeling is sterling exchange rates will be hit by volatility next week when the next round of PMI's are released, before a gradual squaring of positions ahead of the all-important inflation report.

GBP Undermined by Bank of England Chatter

Despite the first estimate of Q3 GDP coming in at a decent 0.7% q/q, recent rhetoric from a number of BoE officials have been a little on the dovish side.

BoE MPC members Shafik, Cunliffe and Haldane have all indicated that monetary policy could remain loose for longer than previously thought.

"While this may be a little dovish, the comments do somewhat support current market rate expectations. The OIS curve suggests the first rate hike is priced for around August 2015," says a note from Lloyds Bank Research.

"The pound continued to nurse a generally fragile bias after slumping two weeks ago below the key $1.60 level to its lowest level in nearly a year," notes Joe Manimbo, analyst at Western Union.

"Meaningful upside for sterling, based on its own fundamental merit, should remain a challenge for the foreseeable future, with both wage growth and inflation subdued and risks from faltering growth in the euro zone, a key trade partner," says Manimbo.