GBP to Euro Exchange Rate Down And Could Head Lower

December 13, 2012 - Written by John Cameron

STORY LINK GBP to Euro Exchange Rate Down And Could Head Lower

The euro once gain registered gains against the Pound during yesterday’s session, sending the GBP EUR exchange rate down into the lower half of the 1.2300s by the European equities close. Not for the first time in recent sessions, the single currency appeared to be defying all logic by strengthening against Sterling. The fundamentals suggested that a move to the upside would have been the most obvious outcome following some strong UK employment data and the release of figures which suggested that yesterday’s debt buyback by Greece was not as successful as had originally been thought.

Institutional investors holding Greek debt sold some €31.9bn of their holdings back to the troubled Hellenic state’s government at a whopping discount of 66.2%.The cost of the collective purchase weighed in at €11bn, meaning that Greece managed to write off only around €20bn of its governmental debt commitments. The best adjective which French Finance Minister Pierre Moscovici could muster to describe the outcome was that it was ‘satisfactory’.

Meanwhile, yesterday’s whole of eurozone Industrial Production data for October printed at a disappointing -3.6% versus expectations of a showing of -2.4%. The tame showing raised fears that mainland Europe’s economy is heading for another recession, particularly in light of last week’s eurozone GDP data which confirmed a slight contraction in economic activity in euroland during the three months to the end of September.

The old market adage states that ‘what should go up and doesn’t go up can only come down’. Really, yesterday’s fundamentals should have heralded a forward move for the GBP EUR exchange rate. The fact that the pair ended the day at a lower level than it had been when Europe’s markets opened, sends out a strong negative indicator for GBP EUR in the short-to-medium term.

Meanwhile, on the other side of the Atlantic, the FOMC announced a slight alteration to its monetary policy targets last night. The US Central Bank stated that it will now maintain interest rates at their current ultra-low level until the overall level of US unemployment dips below 6.5%. The Fed also revealed that it would be slightly changing the way it purchases the $85bn worth of bonds per month which it is buying via its controversial Quantitative Easing programme. The net effect will be to make America's QE scheme more effective. The Dollar has remained under pressure since the Fed announcement and the GBP USD exchange rate currently stands at 1.6141.

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