Pound Euro Exchange Rate (GBP EUR) Forecasted To Dip On US Data

Modified: Friday, 12 April 2013 09:02 BST - Written by John Cameron

STORY LINK Pound Euro Exchange Rate (GBP EUR) Forecasted To Dip On US Data

As recently as 12th March, the Pound Euro exchange rate (GBP/EUR) was floundering below the 1.1400 level and appeared set to beak down through to a new sixteen month low at levels below 1.1344. Then came the Italian election. The indecisive outcome of the popular ballot in Italy caused institutional investors to suffer a severe attack of the jitters as fears increased that the debt-addled Mediterranean state might ditch its austerity plan. These concerns, in combination with the recent debt stand-off between Cyprus and the EU/IMF/ECB Troika, rapidly weakened the single currency, sending the Pound Euro exchange rate all the way up to a ten week high of 1.1889 on the first day of this month.

It was therefore significant when yesterday’s latest Italian bond auction saw the price which the leaderless eurozone state pays on its governmental debt drop. The yield paid by Italy’s government on its 10 year gilts edged down to 4.28%, which was over half a percentage point down from the level which it was being forced to pay at the end of last month. Meanwhile, the rate of interest paid by Italy on her three year bonds tumbled to its lowest level since the end of January, before the recent inconclusive Italian general election.

Yesterday’s vote of confidence in Italy’s debt was also effectively a vote of confidence in the eurozone as a whole. The single currency has increasingly become a risk-driven currency and is perceived as lacking the resilience to weather choppy trading conditions in the global markets. The Bank of Japan’s announcement last week that it was set to flood the market with easy money appears to have stoked appetite for risk amongst institutional investors, adding to the demand for the single currency.

This afternoon’s US Retail Sales data for March and the latest edition of the closely-watched Michigan sentiment survey will further determine risk sentiment in the market. Expect a strong showing for either or both of these data releases to elicit a renewed bout of support for the single currency.

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