Pounds to Euros Exchange Rate – GBP EUR Tests Lower Following UK Growth Figure, USD Weakens

26 Jan 2012 at 8 AM - Written by Tim Boyer

STORY LINK Pounds to Euros Exchange Rate – GBP EUR Tests Lower Following UK Growth Figure, USD Weakens

The Pound Euro exchange rate (GBP EUR) is 1.1959. The Pound Dollar exchange rate (GBP USD) is 1.5694. The Pound Australian Dollar exchange rate (GBP AUD) is 1.4744.

Yesterday was a day of significant events, comments and releases in the currency markets.

UK data provided the first risk events of note, with the release of official Q4 GDP data for the British economy at 0930hrs GMT. The gauge of economic activity printed at below analysts’ expectations, showing a quarterly contraction of 0.2%, hinting that the UK’s fragile economy may well be edging towards a double-dip recession, as predicted by Ernst & Young’s ITEM Club last week.

The minutes of January’s Bank of England Monetary Policy Committee meeting were released at the same time as the British growth figures, yesterday morning. The minutes revealed comments from several MPC committee members suggesting that an increase in the Bank’s existing £275bn asset purchase scheme may well be on the cards for later this year. This added to the gloom surrounding the Pound, however the market’s immediate reaction to the releases was slightly Sterling-positive, hinting that investors had been expecting the minutes to be more dovish in nature.

Meanwhile, German Chancellor Angela Merkel added to existing uncertainty regarding the eurozone’s future make-up when she addressed the World Economic Forum in Davos. She stated that a ‘big rethink’ was required from eurozone policy-makers regarding the region’s role within the global economy. She went on to pose a rhetorical question – ‘Do we dare to be more European’? 2012 could be a year of massive change for continental Europe.

Elsewhere, the IMF issued a warning that the current Iranian oil stand-off, which has seen EU Finance Ministers impose an embargo on the Persian state, an action which elicited threats from Iranian leaders to sabotage supplies of crude oil from the region, could see oil prices soar by up to 30% in coming weeks. If this comes to pass, then the US Dollar could come under pronounced selling pressure, given that America is the biggest net importer of crude in the world.

The Greenback showed signs of weakening in late trading yesterday, following the release of the latest FOMC rate decision in the US. Committee members opted to maintain US interest rates at their current record low range of 0-0.25%, as expected. However, the highly dovish tone of the accompanying statement, which foresaw US interest rates remaining low until 2014, was less expected. This sparked a move against the Dollar, taking the GBP USD to 1.5699 overnight, its highest level since December 26th.


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