Another busy week for GBP/EUR but where next for the pairing? (Alistair Ryan)

GBP EUR Drops After GDP Misses BoE’s 5% Target

We have witnessed yet another volatile week with regards to GBP/EUR rates. We started the week with the UK losing their AAA credit rating which, although many expected it, brought a sense of shock in to the market and we saw the pound plummet against most major currencies. It looked as though GBP/EUR rates were set to continue their decline but then uncertainty hit in the shape of the Italian Election. It seems as though the markets were expecting a more stable outcome to this election in the Eurozone’s third largest economy but with no clear winner and no set date of this being resolved, uncertainty in the market is rife.

Inflation figures for the Eurozone were released yesterday showing that inflation across the Eurozone had fallen from 2.2% to 2% in January. It is believed the fall in inflation is due to weakening economies and widespread austerity giving retailers no chance to increase their prices. This data release seemed to have little effect on GBP/EUR rates yesterday but I think we
could be in for a very volatile ride between the pound and euro in the coming days and weeks.

The markets are very hard to judge at the best of times but at the moment it seems like the pendulum really could swing either way. With the Italian election still not resolved there is a lot of uncertainty in the euro with many investors very wary of the single currency and with the very realistic chance that the UK could be heading towards a Triple Dip recession and the possibility of Mervyn King or any other member of the BoE or government trying to talk the pound down, the tug of war between the two currencies seems far from ending.

Although there has been a lot of talk about parity between Sterling and Euro my personal opinion is that we will see these rates head down towards the 1.10 region but I can’t see them moving any further than that. There is too much uncertainty in the market at the moment for one currency to strengthen or weaken so much against the other and rates to move that fiercely.

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