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Morning Foreign Currency Insight : Outlook For GBP/EUR is Negative as EUR Expected to Gain on Trichet?s Comments

March 3, 2011 - Written by John Cameron

The GBP/EUR pair traded in a tight range yesterday ahead of a busy day for Eurozone data today, hitting a high of 1.1815 but only testing 1.1759 on the downside.

The centrepiece release for today comes at 1245hrs GMT when the European Central Bank announces its interest rate decision for March. Analysts are expecting the key lending rate to be maintained at 1.00%, however consistently hawkish comments from ECB Governing Council members in recent weeks will have caused a minority percentage chance of a 25 basis point hike to have been priced into the Euro’s market value.

Consequently, a maintenance of current rates may bring a negative reaction from market participants, causing GBP/EUR to re-test the 1.1800 resistance level which has been in place since 22nd February.

The tone of ECB President Jean-Claude Trichet’s press conference will also be closely monitored by market participants. With signs that price pressures are increasing in the Eurozone economy and with these pressures likely to accumulate due to the recent spike in crude oil prices, analysts expect Trichet to state that the governing council is remaining vigilant towards escalating price pressures. Such comments would see further support for the EUR and could see GBP/EUR trend downwards towards last week’s low of 1.1636, which is the pair‘s near-term target.

A slew of economic data is due for release in Europe this morning, prior to the Eurozone rate announcement. Whilst none of this is tier one data, the whole of Eurozone growth and retail sales numbers will be particularly closely monitored for signals that European price pressures are heating up and for indications that the real economy in Europe is strong enough to withstand an increase in the lending rate.
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