GBP EUR Exchange Rate Forecast To Hit 1.2894 Following ECB Interest Rate Cut

Modified: Thursday, 7 November 2013 14:44 BST - Written by Minesh Chaudhari

STORY LINK GBP EUR Exchange Rate Forecast To Hit 1.2894 Following ECB Interest Rate Cut

The ECB caught currency market participants on the back foot earlier today by cutting its key lending rate. Many analysts are now forecasting a forward shift towards 1.2984 for the GBP EUR exchange rate.

The Pound to Euro exchange rate (GBP/EUR) is currently trading up by 1.08% at 1.2025 GBP/EUR. The Euro to Pound exchange rate is currently trading at 0.8316 EUR/GBP.

The Pound euro exchange rate (GBP/EUR) jumped to its highest level since the 17th January shortly after 1245hrs GMT thanks to a surprise move from the European Central Bank. In spite of recent comments from ECB President Mario Draghi which revealed that his Bank’s policymakers had actively discussed an interest rate cut at the two most recent meetings, the vast majority of analysts were anticipating a maintenance of its key lending rate at 0.50% from mainland Europe’s central bank today. It therefore came as a massive shock to investors holding euro-denominated assets when the ECB announced that it was trimming the region’s headline interest rate to a new all-time low of 0.25%.

The Bank of England had announced that it would be making no change to the UK base rate or to the £375bn allocated to its controversial asset purchase scheme a short time before the ECB announcement. The net effect of the two policy decisions saw the GBP EUR exchange rate rocket to as high as 1.2048 during the hour following the shock ECB decision.
Given the tone of the rhetoric contained in the press conference from ECB President Mario Draghi which followed the rate cut, there could be further upside to come for GBP EUR. Draghi noted that growth risks in the eurozone remain to the ‘downside’. He also replicated the pattern of recent ECB press conferences by issuing a ‘Forward Guidance’ statement which instructed investors that European interest rates are set to remain at their current level or lower into the foreseeable future.

The majority of analysts now predict that the GBP EUR exchange rate will head northwards in the near-term. The key level to look out for to the upside come at July 2012’s 5-year high of 1.2894. GBP EUR will have to break through resistances at 1.2368 and 1.2562 before hitting this level though.

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