Pound Euro Exchange Rate Forecasted To Suffer Selling Pressure Following ECB / BoE Policy Decisions

Modified: Thursday, 10 January 2013 06:38 BST - Written by Minesh Chaudhari

STORY LINK Pound Euro Exchange Rate Forecasted To Suffer Selling Pressure Following ECB / BoE Policy Decisions

Fears that the UK is increasingly taking up an isolationist position in global affairs burgeoned yesterday following comments made by a senior US State Department policymaker. In an unusual step, Philip Gordon, who holds a senior role in America’s foreign affairs department, appeared to offer Britain’s ruling coalition government advice on the future direction of the UK’s troublesome relationship with the eurozone.

Gordon spoke out publically regarding the potentially divisive effect which a referendum on whether Britain should remain in the EU could have, observing that previous popular votes have had an introspective outcome for the administrations holding them. He went on to posit that there needed to be a "strong British voice within the EU".

Conservative Prime Minister David Cameron appears to be warming to the idea of a UK referendum on Britain’s continued membership of the single economic area, (cynics would suggest that this is because his focus groups are indicating that such an action would ‘play well’ with voters). However, such a populist move from Cameron could risk isolating Britain not just from its major trading partner, (the eurozone), but also for the world’s leading economic and geopolitical superpower – the USA. The days of Britain’s ‘special relationship’ with America appear to be long gone, however the UK remains dependent on a close political alignment with the States in order to provide it with negotiating clout on the global stage. Anything which threatens this would be seen by institutional investors as bad news for Britain and bad news for the Pound Sterling.

Looking ahead to today’s session, the two primary risk events of note come in the form of the latest Bank of England and European Central Bank monetary policy committee decisions this lunchtime. It would be a surprise if either Bank altered its current policy stance, so the main source of price action will be the tone of the rhetoric used by ECB President Mario Draghi in his post announcement press conference. Draghi has reassured the markets in his recent press conferences and appears to be a dab hand at saying the right thing at the right time. Given this, this afternoon’s session may bring further downside for the GBP EUR exchange rate.

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