Pound Euro Exchange Rate (GBP EUR) Tumbles On Barroso?s Words

Published: Tuesday, 8 January 2013 09:00 BST - Written by Tim Boyer

STORY LINK Pound Euro Exchange Rate (GBP EUR) Tumbles On Barroso?s Words

Sterling endured a mixed day in the currency markets yesterday, initially recording pronounced losses against the Australian and Kiwi Dollars. An encouraging set of new car sale data, released by the SMMT yesterday morning, showed that British new car sales had reached their highest level since 2008 last year, providing some reason for optimism regarding the UK’s manufacturing base and future levels of consumer spending in 2013. However, the latter part of the session saw the GBP AUD and GBP NZD exchange rates make a concerted comeback. While the high-yielders lost ground against Sterling in late trading, the Pound to Euro exchange rate (currency : GBP EUR) dipped thanks to a renewed bout of support for the euro.

The positive sentiment towards the single currency after yesterday’s European equities close was driven by comments from European Commission President Jose Manuel Barroso, who used a set-piece speech to boldly predict that the threat to the euro’s very survival in the middle part of last year had been ‘overcome’. Barroso stated that the actions of the European Central Bank last autumn had been key to the single currency’s turnaround. The euro had been languishing during the middle part of last Summer as analysts queued up to predict not if, but when, Greece would be exiting the eurozone. The speculation gave rise to investors’ fears that a fully-blown Greek debt default might take down France’s retail banking sector and place heavy pressure on the economies of Spain and Italy and sent the GBP EUR exchange rate spiralling to close to 1.2900 on 22nd July.

Borroso accredited the ECB’s announcement last September that it would be staging an unlimited buy-back of struggling states’ government bonds as the turning point which reassured institutional investors that it was once again safe to hold euro-denominated assets. The EC President’s comments saw the GBP EUR exchange rate settle back down into the mid-1.22s during the overnight session.

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