GBP-EUR: Pound Euro Exchange Rate Forecast Improves

Modified: Thursday, 11 July 2013 10:07 BST - Written by David Woodsmith

STORY LINK GBP-EUR: Pound Euro Exchange Rate Forecast Improves

Yesterday’s session brought two significant market-moving risk-events for the Pound to euro exchange rate (currency : GBP EUR). The dual developments should, ceteris paribus, have sent the pair higher, but GBP EUR resiliently held in a tight range either side of the 1.1600 threshold throughout the day.

News from the perennial Mediterranean debt struggler Italy led the way during the early hours of Wednesday morning, when leading credit ratings agency Standard & Poors announced that it had downgraded the nation’s sovereign credit rating by one notch from BBB+ to BBB. For several months the hottest economic news story of last year had gone almost completely quiet – there was virtually nothing in the press regarding the eurozone’s debt crisis when this time last year all the talk was of not whether the eurozone would break up, but when the single currency area would be split asunder.

However, this has changed in recent weeks as an increasing number of stories appeared on the news wires regarding a potential break-up of Portugal’s ruling co-alition government and whether this might lead to an anti-austerity party grasping power. Within the past week, Greece has reared its ugly head once more with rumours sweeping the market that the debt-addled Hellenic state might not be granted the next tranche of emergency bailout funding which it needs in order to avoid bankruptcy. Yesterday’s announcement from S&P raises further doubts regarding Italy’s creditworthiness and is likely to cause the yields which Italy’s government is forced to pay on its bonds rise, making it even more difficult to service the nation’s massive and burgeoning debt.

Meanwhile, there was better news from the UK, as another of the ‘Big 3’ ratings agencies passed positive comment on Britain’s banking sector. Moody’s issued a statement yesterday morning which revealed that it was upgrading its outlook for Britain’s retail banking sector from ‘negative’ to ‘neutral’. Only five years ago Britain’s banks were in turmoil – Northern Rock went under completely and several other leading High Street names including Lloyds TSB and Bank of Scotland had to go begging bowl in hand to the UK government for emergency funding which allowed them to stay afloat. Moody’s attributed the upgrade to an improvement in levels of stability in Britain’s economy a whole. The endorsement of the ruling UK coalition government’s sometimes controversial economic policies may have a beneficial effect on the GBP EUR exchange rate as we head towards the weekend.

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TAGS: Daily Currency Updates Euro Forecasts Euro Pound Forecasts Pound Eu Forecasts