Outlook For Pound Euro Exchange Rate (GBP/EUR) Dims Following Lawson?s Comments

Modified: Tuesday, 7 May 2013 20:05 BST - Written by David Woodsmith

STORY LINK Outlook For Pound Euro Exchange Rate (GBP/EUR) Dims Following Lawson?s Comments

Yesterday’s afternoon session in Europe saw risk appetite make a major comeback having been subdued during the early part of the trading day. The shift in investor sentiment saw the high-yielders well supported on the day, with the Australian Dollar making significant gains.

The Aussie had been under sustained selling pressure earlier in the day following the Reserve Bank of Australia’s announcement in the early hours of Tuesday morning that it was set to trim its key lending rate to a record low of 2.75%. The development sent the Pound to Australian Dollar exchange rate (currency: GBP/AUD) up to its highest level since 11th February at 1.5290. However, negative sentiment towards the Australian tender was relatively short-lived and by the latter part of yesterday’s North American session, the pair was trading back down in the lower part of the 1.5200s once more.

The turnaround in risk on the day was primarily driven by a stronger than anticipated set of German Factory Order data which hinted that the eurozone’s premier economy remains in rude health. A positive performance from Far Eastern share markets, which saw the benchmark Nikkei 225 index break through the psychologically significant 14,000 for the first time since the advent of the ongoing global credit crisis in 2008, had laid the ground for the amelioration of risk appetite which ensued.

Elsewhere, while the high-yielders registered gains as the day progressed, Sterling leaked support. One contributory factor for this was comments from former Conservative Chancellor of the Exchequer Lord Lawson, whom erstwhile UK Prime Minister Margaret Thatcher once famously described as ‘my brilliant Chancellor’. Lawson publicly stated that the UK should leave the European Union and cast doubts on the efficacy of current British Prime Minister David Cameron’s efforts to renegotiate Britain’s deal with Brussels. Not for the first time, market participants baulked at the though of the UK being cast adrift from mainland Europe and moved out of Sterling-denominated assets, sending the Pound euro exchange rate (currency : GBP/EUR) down to close to 1.1800 by the end of London’s equities session.

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