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Pounds To Euros - GBP/EUR Trades Higher While USD Holds its Ground

March 8, 2011 - Written by John Cameron

Pound Dollar exchange rate (GBP/USD) is 1.6153. The Pound Euro exchange rate (GBP/EUR) is 1.1619.

In recent weeks, the Euro has made gains against both Sterling and the US Dollar, thanks to persistently hawkish comments from European Central Bank President Jean Claude Trichet and other members of the ECB governing council. These comments have led futures markets to price in a near 100% chance of a rate increase at April’s ECB meeting and a total 1% of Eurozone rate hikes in the next 12 months.

The Euro US Dollar exchange rate (EUR/USD) touched a four month high of 1.4036 earlier this week and is at 1.3903 currently. GBP/EUR has edged back towards its near term low of 1.1580 within the last 24 hours, a level which will provide strong support.However, GBP/EUR has seen some support as today's European session progressed.

Increasingly, analysts are suggesting that the market is now fully factoring-in all of the possible future ‘good news’ regarding Eurozone interest rates, leaving the Euro in a vulnerable position.

During yesterday’s session, market focus returned to the Eurozone debt situation when leading ratings agency, Moodys, downgraded Greece’s national debt and Spain’s outlook was pegged back to ‘negative’ by Fitches. Bond spreads for Portuguese and Irish debt have also widened to an alarming degree during recent trading.

With the ECB beginning an emergency debt summit on Friday, there is likely to be a great deal of commentary and analysis regarding the structural situation of the Eurozone economy, which could see institutional funds drifting away from Euro-denominated assets and into the near-by safe haven of the Swiss Franc.

If we do see a shift out of the Euro during the latter part of the week, then it is possible the EUR/USD pair may re-trace back down towards its strong support level at 1.3500 and GBP/EUR may test the 1.1500 level.

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