Pound to Euro Forecast: Today's GBP/EUR Exchange rate Analysis and Forecasts

January 6, 2015 - Written by John Cameron

STORY LINK Pound to Euro Forecast: Today's GBP/EUR Exchange rate Analysis and Forecasts

Pound Sterling to euro Exchange rate Outlook: Uncertainty Rules as 2015 Begins

Uncertainty gripped the global markets as 2015 got underway in earnest yesterday. Analysts moved to rapidly alter their forecast for several leading Pound Sterling (currency:GBP) pairs as major shifts took place amongst the investment community. The price of a barrel of West Texas Intermediate crude oil slid to below the psychologically significant $50 threshold for the first time since the Spring of 2009 as market participants priced in an apparent cooling of the pace of the global recovery.

Share Markets Slide, VIX Spikes

Meanwhile, international equities markets shipped support across the board, with London’s benchmark FTSE 100 index shedding 2.0% of its value on the day to close at 6,417. Frankfurt’s Dax dropped by close to 3.0% and Paris’s Cac 40 gave up 3.31%. The shift lower for shares was unsurprisingly accompanied by a pronounced spike in the VIX ‘Fear Index’ which gauges the volume of protective ‘put’ orders placed by US equities traders on their deals. VIX ended last week’s session comfortably below the 20.00 threshold, but by the middle part of yesterday’s American equities session, had jumped to above the 21.00 level.

Euro Pressured as Grexit Back on the Menu

The flight to safety was driven by fresh concerns that Greek voters may be about to elect an anti-bailout party, or coalition of parties. Any such move would firmly place the word ‘Grexit’ back in the minds of currency market participants. Such a move would bring a renewed shift out of risk which would send shares sharply downwards and favour the Pound Sterling against the Commodity Dollars, (AUD, NZD and CAD). The Sterling New Zealand dollar exchange rate, in particular, appears ripe for a fresh move higher; the pair dropped to as low as 1.9735 during trading yesterday, having tipped the scales at above the two to one threshold as recently as last week. A continued move higher for VIX would surely send the pair back up above 2:1.

ECB Out of Bullets

If Mark Grant of Southwest Securities is to be believed, things could be about to get a lot lot worse for the euro area. Grant stated yesterday that, ‘my thought at this point is that the ECB is out of bullets. They don't have anywhere to go. They're facing deflation. I think you're going to see deflationary numbers across the board at the next report in January,’ and went on to suggest that the effect of QE in the euroland would be ‘negligible’ because most borrowing from retail banks in the region is carried out via 5-year treasury bills which already carry interest rates of below or close to zero. The consensus forecast amongst analysts puts GBP EUR considerably higher.

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TAGS: Currency Predictions Euro Forecasts Euro Pound Forecasts Pound Euro Forecasts