Pound Euro Future Exchange Rate Forecast Depends On JPY, Gold Shines

January 15, 2014 - Written by John Cameron

STORY LINK Pound Euro Future Exchange Rate Forecast Depends On JPY, Gold Shines

Price action for the euro has been tough to fathom in recent times.

After the European Central Bank announced a cut in its key lending rate to a new record low of 0.25%, many analysts had expected the Sterling euro exchange rate (GBP/EUR) to rapidly motor up towards the range-topping rate of close to 1.2900 which it had last reached in July 2012.

However, the single currency has confounded expectations during the past two months to remain almost as firm against the Pound as it was immediately before the ECB’s surprise cut. The pair spend a large chunk of yesterday’s session trading below the 1.2000 level as market participants continued to prove keen on holding euro-denominated assets.

The sustained support for the euro since the ECB’s loosening of policy at the start of November can be partly attributed to Japanese institutional investors’ continued appetite for eurozone bonds. The support for the single currency since this time has coincided with a bout of selling pressure on the Yen as domestic Japanese investors looked to foreign shores for a return on their holdings. For this reason, any future move higher towards the middle part of the 1.2000s for the GBP EUR exchange rate may be dependent on a downshift in the GBP JPY exchange rate.

Elsewhere, the wholesale market price of gold climbed to its highest level for a month during yesterday’s session, clipping $1,251.50 per troy oz late on. The move into the safe haven precious metal came as market participants continued to shift out of equities following Friday afternoon’s grim US job creation figures. This support for gold could see the Pound South African Rand exchange rate (GBP/ZAR) peel back from its multi-year highs over the next 24hrs. Meanwhile, the attendant dip in global risk sentiment has the potential to send GBP AUD and GBP NZD higher once more.

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