Pound To Euro Exchange Rate (GBP EUR) Forecast To Gain

Published: Monday, 3 June 2013 09:00 BST - Written by Toni Johnson

STORY LINK Pound To Euro Exchange Rate (GBP EUR) Forecast To Gain

The Pound to euro exchange rate (currency : GBP EUR) appears to have hit a flat spot. After several months of erratic lurches higher and then lower, the pair has traded in a tight range between a high of 1.1908 and a low of 1.1578 during the ten weeks since 18th March.

This lengthy period of sideways movement could represent one of two things; either it is a pause in the pair’s downward descent from last July’s multi-year high of 1.2894, in which case GBP EUR will recommence its downwards trajectory sooner rather than later. Alternatively, the past ten weeks of relatively level trading may turn into a bottoming pattern and the pair will soon start retracing back up towards the rates of close to 1.3000 which it enjoyed during the middle part of last Summer.

This week’s session is likely to provide investors with useful hints on the future direction of GBP EUR. Expectations are low for Wednesday’s whole of eurozone Q1 GDP growth figure. The consensus amongst analysts is that the headline number will show that activity levels in mainland Europe’s economy dropped off by 0.2% during the first three months of 2013. Anything worse than this and the single currency could endure a sharp bout of selling pressure which would have the potential to send the pair back up above the psychologically key 1.2000 level for the first time since mid-January.

However, the key risk events of note for GBP EUR this week both come on Thursday lunchtime in the form of the latest central bank policy announcements in both the eurozone and the UK. Although recent Bank of England Monetary Policy Committee minutes have revealed that three of the nine MPC members favour more Quantitative Easing for Britain, it appears unlikely that the Bank will opt for more QE this month, following the slightly firmer tone of recent UK data releases.

However, the European Central Bank’s intentions are far harder to read, in the wake of its announcement last month that it was cutting its key lending rate to a new record low of 0.50%. Market rumours since then have suggested that the ECB might attempt to jump start Europe’s flagging economy by taking the dramatic step of introducing negative interest rates. Any such announcement would trigger heavy selling pressure on the euro.

On balance, taking all of the above factors into account, it would appear more likely that the Pound to euro exchange rate (currency : GBP EUR) will make gains in the short to medium term rather than incur any further losses.

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