Pound Euro Exchange Rate (GBP EUR) Breaks Down To Lowest Level Since Mid-March

Modified: Monday, 21 January 2013 17:18 BST - Written by David Woodsmith

STORY LINK Pound Euro Exchange Rate (GBP EUR) Breaks Down To Lowest Level Since Mid-March

This week’s session in the currency markets has only just got underway, but already the Sterling Euro exchange rate (currency : GBP EUR) has registered a new 10 ½ month low, dropping to 1.1875 earlier this afternoon. Negative sentiment surrounding the Pound picked up momentum during last week thanks to fears that this Friday’s domestic GDP data will disappoint and the potential consequences if the UK is set to lose its AAA credit rating.

On a normal day, this morning’s German Producer Price Index for December, which showed at below the anticipated annualised 1.7%, would have put pressure on the euro. However, the single currency managed to bully Sterling in the aftermath of the release, with the GBP EUR exchange rate doing significant business below the 1.1900 level this afternoon.

Nothing keeps falling forever – everything, at some stage sooner rather than later, has to hit the ground. So when will GBP EUR reach an interim floor? Looking at the technical momentum indicators, there appears to be an argument that the pair’s recent downward move is running out of momentum. Although there are tangible fundamental reasons why GBP EUR has lost ground since the turn of the year, the extent of these losses appears to be out of synch with the fundamental drivers – in total, GBP EUR lost over 3.9% of its value between its high of the 3rd January and the start of Europe’s session this morning. Although a further move downward to last February’s 1.1756 looks highly possible in the short-to-medium term, a near-term consolidation at current levels appears possible.

Looking ahead to tomorrow’s session, investors will be monitoring announcements from the latest eurozone Finance Ministers’ meeting in Brussels for clues on the future direction for GBP EUR. Last Summer’s widespread shift out of euro-denominated assets, which sent the pair spiralling into the high 1.2800s, was largely driven by a series of fruitless eurozone summits. A lack of clear policy vision from Europe’s policymakers this week could cause confidence towards the single currency to falter, at least temporarily.

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