Pound Euro (GBP/EUR) Exchange Rate Forecast To Break To New 10-Month High

Modified: Wednesday, 20 November 2013 17:18 BST - Written by John Cameron

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Forecast To Break To New 10-Month High

The Pound Euro exchange rate soared this afternoon as market participants shifted wholesale out of euro denominated assets. The move against the single currency was triggered by market rumours regarding the future direction of the European Central Bank’s monetary policy.

Pound to Euro Trades Close to 10 Month High

The Pound euro exchange rate (GBP/EUR) traded up to within a fraction of a cent of a new 10-month high as rumours swept the market that the European Central Bank is set to slash its deposit rate into negative territory. The move would effectively mean that financial institutions in mainland Europe would be charged for holding their funds with Europe’s central bank overnight. The aim of any such action would be to get retail banks in continental Europe lending to private individuals and small to medium sized enterprises once more.

A few short months ago talk of such a cut would have been dismissed as a flight of fancy, but comments from the ECB’s President Mario Draghi following his bank’s November policy meeting suggest that interest rates below zero could be a distinct possibility. The mere thought of a rumoured cut from 0.0% to -0.1% for the ECB’s overnight rate caused the euro to plummet against the Pound, sending GBP EUR up to as high as 1.2008 shortly after the New York open.

Further Potential for EUR/GBP Decline When Fed FOMC Policy Minutes Published

There is definite potential for further downward movement for the EUR GBP exchange rate later today when the minutes of the US Federal Reserve’s November FOMC policy committee meeting are published. Although the memos of the latest get-together of the Fed’s policymakers will not directly affect levels for the Pound or for the euro, the rhetoric contained in the memos is highly likely to have a profound bearing on the EUR USD exchange rate – the world’s leading pair. By dint of arbitrage funding, any moves for EUR USD will trigger compensatory shifts for the GBP EUR exchange rate, with renewed support for the Greenback likely to cause an upward shift for GBP EUR. If the Fed suggests that Quantitative Easing may be trimmed early in the New Year then the Buck and the EUR GBP exchange rate are likely to tumble.

The Pound to Euro exchange rate (GBP/EUR) is currently trading up by 0.92% at 1.2006 GBP/EUR. The Euro to Pound exchange rate is currently trading at 0.8329 EUR/GBP.

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