FX Forecast: Euro to Pound and US Dollar Exchange Rates Rise as EUR Widespread Gains

Modified: Tuesday, 23 September 2014 22:15 BST - Written by Toni Johnson

STORY LINK FX Forecast: Euro to Pound and US Dollar Exchange Rates Rise as EUR Widespread Gains

After the Scottish voted against independence, the British Sterling exchange rate (GBP) broadly strengthened and the Euro to Pound conversion rate fell to a fresh two-year low.

Although the decision had been largely priced into the market by Thursday, Sterling still posted additional advances on Friday.

The 55% ‘No’ to 45% ‘Yes’ vote was well received by investors who had feared a breakup of the United Kingdom.

Economist Azad Zangana stated; ‘Scottish residents are more in favour of remaining in the EU, compared to the rest of the UK where the majority favour an exit.

Overall, major disruption has been avoided and focus can now return to building on the strong economic recovery in progress. The Bank of England is now likely to press ahead with raising interest rates early next year in the absence of political uncertainty.’

So where do the latest forex rates stand today?

- The euro to australian dollar exchange rate is +0.8 per cent higher at 1.44790.
- The euro to pound exchange rate is -0.12 per cent lower at 0.78635.
- The euro to dollar exchange rate is +0.08 per cent higher at 1.28504.


The Euro had previously held its own against the Pound in spite of declines in the ZEW economic sentiment surveys for both Germany and the Eurozone. However, the common currency did come under pressure as the European Central Bank’s latest attempt at bolstering the Eurozone’s flagging recovery fell flat. The ECB intended for its Targeted Long Term Refinancing Operations to encourage bank lending to small businesses and increase liquidity. However, banks opted to borrow far less of the low-interest four-year loans than economists had forecast. Consequently, many industry experts asserted that the ECB might have to engage in full-scale quantitative easing in order to boost growth.

That being said, Ignazio Visco, a Governing Council member of the ECB, has a different perspective. He commented that with the value of the Euro falling quite considerably over the last few months (shedding 6% against the US Dollar since June), further stimulus measures might not be required. The ECB has already slashed interest rates to record lows, and even gone so far as to introduce a negative deposit rate. During the Group of 20 gathering in Cairns, Visco stated; ‘Inflation expectations have to be back where they were. This doesn’t mean that there will be a next step. We have been bold enough to reduce interest rates to a level that was unexpected to the market. [The Euro’s drop is] more or less, given the moves that were done between June and September, the right response.’ Visco added that the ECB isn’t actively targeting any particular exchange rate.

When speaking of the fact that only 82.6 billion Euros were allocated in the first stage of the ECB’s TLTRO’s this week, Visco noted; ‘There has been some misunderstanding about the TLTROs because it has been conceived as a major failure. The second tranche is more important than the first. What we have observed in a number of countries is that banks postponed borrowing until December. As far as the Italian banks are concerned, it was exactly what we expected.’

Volatility in the Euro to Pound exchange rate could be caused by a number of economic reports next week, including the British Retail Consortium’s like-for-like sales figures, Rightmove house price data and the UK’s public finance report. The major Eurozone reports to be aware of include the Markit Manufacturing, Services and Composite gauges and Germany’s business climate indexes. Disappointing data for the currency bloc could push the Euro to Pound exchange rate lower.

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TAGS: Euro Pound Forecasts