Thursday has seen a volaitle day on the markets for GBP/EUR, as we have seen Sterling surge to a four year high against the single currency. This followed yesterdays announcement by the European Central Bank (ECB) that they would be cutting interest rates by 0.25% to 0.75% and this seems to have sent shockwaves through the market. Investor confidence is once again being tested and the good feeling that seemed to be returning to the euro last week, has quickly subsided.
This spike was not entirely anticipated, due to the fact that the Bank of England announced that there would be a further round of monetary stimulus (Quantitative Easing or QE) to ease the burden on the stagnating economy. UK economic data has been poor over the past couple of weeks, with Construction PMI data particularly worrying as it has fallen below the 50 mark, which indicates economic contraction.
At present it seems though there is more concern with the implications of the ECB’s rate cut than the faltering UK economy but to me Sterling is very over valued and therfore could fall away very quickly. Personally I’m not convinced we are witnessing long-term GBP strength so those holding euro don’t panic yet and to those looking to buy euro you may want to consider your positions as the spike we are witnessing could dissapear as quicklya s it has arrived.
If you have an upcoming currency requirement or would like to be kept up to date with market analysis, please feel free to contact me directly at [email protected] or on 01494 787 478.