UK Business Confidence Plummets Hitting pound To Euro Exchange Rate (GBP EUR) Hard

Modified: Monday, 11 February 2013 16:56 BST - Written by Toni Johnson

STORY LINK UK Business Confidence Plummets Hitting pound To Euro Exchange Rate (GBP EUR) Hard

Not for the first time since the turn of the year, the GBP EUR exchange rate was the currency pair which showed most movement on the day today. The Pound started today’s session lodged in the 1.1800s, only slightly below last week’s intraweek high of 1.1839, which came late on Friday. However, the euro has come roaring back against the Pound since the markets re-opened in Asia last night, culminating in a downside move to 1.1663 earlier.

The move lower for GBP EUR appears to have been partly driven by technical factors, with Sterling having been strongly supported during the final three sessions of last week on the flimsy premise that the next bank of England Governor Mark Carney may not be as intent on loosening the UK’s monetary policy as had previously been supposed. In truth, the move higher appeared overdone, so today’s price action may simply represent a return to fair value for GBP EUR, which had been trading barely above the 1.1500 level as recently as a week ago.

However, there are also fundamental drivers behind the downside shift for GBP EUR today. Comments from French Finance Minister Pierre Moscovici ahead of tomorrow’s eurozone Finance Ministers’ summit in Brussels have raised the spectre of a competitive currency war by the world’s policymakers. Moscovici stated that the region’s collected Finance Ministers will use tomorrow’s meeting to, ‘have a debate about exchange rates’, leading investors to surmise that Europe’s policymakers will talk about weakening the single currency in order to make the region more competitive. However, the calls have failed to weaken the euro in the short term thanks to the ECB and Germany’s steadfast insistence that a weakening of the region’s currency would be outside their remit. Moscovici’s comments simply served to remind investors that such an action remains far less likely for the eurozone than for other major economies including the UK and Japan.

Meanwhile, the Pound has come under sustained selling pressure on the day thanks to a business survey from leading accountancy firm BDO which revealed that confidence levels amongst the UK’s businesses plummeted to its lowest level in over 20 years last month. Hardly a sign that the UK economy is ‘turning a corner’, as 2013 gets underway. There could yet be further near-term downside to come for Sterling.

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