Exchange Rates Outlook: GBP EUR Exchange Rate Edges Higher

Modified: Wednesday, 26 June 2013 14:51 BST - Written by Ben Hughes

STORY LINK Exchange Rates Outlook: GBP EUR Exchange Rate Edges Higher

The Bank of England’s Financial Stability Report comes but twice a year, making the publication from the British economy’s lender of last resort a closely-watched event. This morning’s edition of the report contained some interesting observations; the BoE stated that Britain’s retail banking sector remains vulnerable to any increase in interest rates. The implication that the UK’s base rate will remain at its current record low of 0.5% for the long term has failed to hurt the Pound overly so far today. The Sterling to euro exchange rate (currency : GBP EUR) has oscillated either side of the 1.1800 threshold throughout the session having spent most of the early part of this week in the lower end of the 1.1700s.

The Bank of England report contained further warnings that the British economy could dip towards recession once more if global economic indicators disimproved or the eurozone crisis deteriorated. The fact that the BoE openly stated that mainland Europe continues to pose a considerable risk to Britain’s economic well-being partly explains why the GBP EUR exchange rate has been well bid on the session. However, Sterling’s pronounced losses against the NZD, AUD and CAD on the day suggest that investors are taking the BoE’s message regarding the downside threats to the UK economy from a renewed global slowdown seriously.

Elsewhere, yesterday afternoon’s stronger than anticipated US Durable Goods Orders and Consumer Confidence data sets continue to alter relative levels in the market. The figures from the States have triggered a generalised improvement in global appetite for risk, sending world share indices sharply higher. London’s benchmark FTSE 100 is trading up by almost 1% on the day, while precious metals including gold and silver are trading sharply lower as investors factor-in a higher percentage chance that the US Federal Reserve will scale back its Quantitative Easing programme sooner rather than later. Friday afternoon’s Michigan Sentiment Index will give market participants a renewed steer on the likelihood of such an event.

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