Sterling Euro rate above 1.20 again – what will happen next?

GBP EUR Slumps After Stronger Euro Growth

GBP/EUR rates continued to fluctuate yesterday and the
battle for supremacy between Sterling and the single currency showed no signs
of relenting. We saw some early Euro strength, bringing levels back down below
1.20, before Sterling battled back in the afternoon and looked to be continuing
that trend this morning with further gains.

Investors are keenly awaiting further economic data from the
UK ,which will indicate whether we are likely to be heading back into
recession. Further negative growth in Q1 of this year will mean the UK is
officially back in recession and with further Quantitative Easing likely, the
relatively attractive buying levels we are experiencing at present could
disintegrate quicker than some may imagine. In Europe the on-going Greek debt
talks continue to take centre stage, as any failure to reach an agreement with
their private investors will, in my opinion, result in Europe slipping into an
instant recession. This in turn will put a major strain on the region’s economy
and the risk of contagion will weigh heavily on investor’s minds.

What is becoming clear, is that based on the current
economic climate 1.20 is starting to look like a benchmark for the currency
pair. When we see levels push through this, the general feeling amongst
investors is that Sterling has become over-valued and we quickly see it
retreat. On the flipside, any gains for the single currency are halted as
quickly as they began, as Europe‘s problems see no sign of easing and European
leaders continue to disagree over the best way to implement and ensure the
long-term future of the Eurozone and its single currency.

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