Foreign Currency Market Update – GBP / EUR Update
The Pound to Euro exchange rate rallied by around two-and-a-half-cents to a fresh seven-year high of 1.3800 last week as Bank of England policymakers spoke about the possibility of hiking rates in 12 months time and markets geared up for the European Central Bank’s bond-buying scheme.
GBP/EUR strengthened from 1.3500 to 1.3640 last Monday due to fears that the proposed Greek debt deal wouldn’t be accepted by finance ministers from the rest of the currency bloc.
The Hellenic nation’s four-month bailout extension was finally accepted on Tuesday, but demand for the single currency remained weak because Eurozone inflation printed at a joint-five-year low of -0.6%. Additionally, Sterling was given a boost by comments from BoE Governor Mark Carney suggesting that interest rates would rise at the start of 2016 and urging business owners to continue raising wages over the next two years, or risk strangling the current economic revival.
Sterling surged to a new seven-year high against the single currency on Wednesday in reaction to a baffling scenario in European bond markets, which culminated with investors paying Germany 0.08% for the privilege of lending money to the government of the bloc’s largest economy. This lack of profitability drove speculative investors out of the Euro and across the English Channel into the Pound.
The Pound rallied by a further 100 pips to 1.3770 on Thursday as European bond yields remained depressed and British fourth quarter growth was confirmed at a fairly impressive 2.7% for 2014.
The world’s oldest currency pushed ahead further against the common currency on Friday, reaching yet another fresh seven-year high – the fifth in as many days – as markets continued to shun the Euro ahead of the commencement of the ECB’s large-scale bond-buying programme, which is due to kick-off later this week.
At just under 1.3800, the Pound to Euro exchange rate is currently standing at a very attractive level; it is the strongest rate since autumn 2007 and is six cents higher than it was a month ago.
With Britain approaching the closest general election for decades, there is potential for uncertainty to sneak into traders’ minds and the Pound could give back some of its recent gains in the run-up to May’s vote.
Neither the ECB nor the BoE is likely to modify monetary policy this week – the ECB has just unleashed its final policy weapon and the BoE is preparing for a rate hike in around 9-12 months’ time. This means that we are quite likely to see a little bit of downward movement in GBP/EUR as traders look to lock-in profit from the best Euro exchange rate since 2007.
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