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Exchange Rates : Pounds to Euros - GBP/EUR Steady While EUR and AUD Lose Support

March 9, 2011 - Written by John Cameron

The Pound Euro exchange rate (GBP/EUR) is 1.1658 . The Pound Dollar exchange rate (GBP/USD) is 1.6184 .

Yesterday morning’s downgrading of Greece’s debt rating by leading ratings agency Moody’s failed to cause the haemorrhaging of support for the Euro that many analysts had expected.

There are two main reasons behind the Euro‘s failure to weaken. Firstly, this was not new news; the markets have known for some time that Greece’s debt situation was perilous, so the situation has been almost totally factored-in. Secondly, yesterday saw a spike in global appetite for risk, as evidenced by the pick up in world equities markets and a sharp downward movement in oil prices.

The price of a barrel of Brent crude rallied to above $118 on Monday, but dropped back to trade between $112 and $113 yesterday. This drop was caused by comments made by the Saudi Arabian oil minister, who stated that, "Saudi Arabia will continue to reliably meet the world's petroleum needs." Rumours that Colonel Gaddafi had entered into discussions to flee Libya caused further downward pressure on the price of oil.

The Euro has proved to be sensitive to recent swings in risk appetite because of concerns over the structural strength of the Eurozone economy and fears over European sovereign debts. This means that a sustained pick up in global appetite for risk would provide renewed support for the single European currency.

ECB President Jean Claude Trichet yesterday stated that he foresaw a global round of interest rate hikes in response to rising inflationary pressures. These comments were taken by analysts as further evidence of Trichet ‘warming up’ the markets for an April rate rise in Europe.

Meanwhile, in the UK, analysts continue to question the fundamentals of the British economy, as the British Chambers of Commerce downgraded their 2011 UK GDP forecast from 1.9% to 1.4%.

The GBP/EUR rate traded in a tight range from 1.1579 to 1.1642 yesterday. It would be a surprise if the pair closed significantly outside this range today as most investors opt to sit on their hands ahead of tomorrow’s BoE rate announcement and Friday’s ECB Emergency Debt Summit.

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