Are the tables turning for the trend against the Pound vs Euro

16 August, 2013

Matthew Boyle

Over the past few weeks the Pound and Euro have seemed to take much of the markets limelight, with in recent months the pound making slow and steady losses against the single currency. However this week we have seen the pound start to claw back lost ground- so are we seeing a reversal of the trend, and will these short-term gains be continued? Following Mark Carneys comments to UK parliament last week, we saw the GBP/EUR rate drop almost instantly by 0.5 of cent. Interestingly though, by the time he had finished speaking it seemed confidence was restored in the pound and following the earlier 0.5 cent loss a steady 2 cent gain was seen. Moving in to the start of this week, it was set to be an unsteady one for the pound as analysts were split over whether it would continue to benefit particularly amidst a heavy week of data releases, or whether gains from the previous week were to be short-lived and quickly eroded. Monday saw positive housing data released from the UK as the RICS housing price balance came in well over prediction – in at 36% from a predicted 25% and up from 21% in the previous month. This taken against a relatively quiet day for Eurozone data (although Greek Q2 GDP was down) saw the pound continue to make slow gains against the single currency gaining 0.25 of a cent, however when trading closed rates had slipped back to levels seen at the start of the days trading. Tuesday was set to be busier day with a raft of UK consumer, retail and production data being released. Interestingly of the 12 release not one came in over prediction, with 5 coming in under – fairly bearish results. And the same day we had ZEW sentiment figures for both Germany and the Eurozone – all of which came in above prediction. However despite these reports, the GBP/EUR rate remained range bound within 0.5 a cent and quite surprisingly didn’t drop given what should have been a Euro positive day. Wednesday was set to be even busier with a huge amount of data releases in the morning – Euro, German and Portuguese GDP, French CPI, whilst in the UK we had-some unemployment data, and what has in recent times been some of the biggest anticipated news….the Bank of England minutes and MPC vote. Much of the Eurozone data came in positive and it was also announced that France is now officially out of recession. This news, combined with the fact the MPC vote had already changed last month to 9-0 against Q.E made it hard to see how the pound could make any gains. However reports followed that UK unemployment figures were down with earnings up, this saw the pound rally and by the close of trading had gained almost a cent against the Euro, taking it to a 6 week high. Thursday saw more positive data from the UK as Retail sales came in at 1.1% above a predicted 0.6% (MoM) and 3.1% from a predicted 2.7% (YoY) and once again the pound moved rapidly, gaining 0.75 of a cent during the days trading taking it to a near 2 month high. Today is silent for UK data, however we do have Eurozone current account, CPI and trade balance due, and without positive news we may see the pound continue its slow recovery against the Euro. It should be noted that this weeks gains have been far from expected. In recent months we have seen lots of positive data from the UK regarding house prices, unemployment and GDP, all of which have failed to shift the balance. It is perhaps in part due to Mark Carneys plan of “forward guidance” and the assumed U-turn on Q.E. But given the fact the MPC vote changed last month, another 9-0 vote against would not have moved the market. Perhaps then market and investor sentiment has indeed turned the corner somewhat, and after months of slow losses the pound has now turned the tables? It would seem that looking at the data that the short-term trend for GBP/EUR has changed. In recent months despite positive UK data the pound has lost, but looking at the past week it might be said we have seen a change as it made gains amidst positive Euro data – something not seen for some time. Be careful though…. in what has been a highly unpredictable week and with predictions that now the Eurozone will follow France out of recession, it is not impossible we may see a halt to the 1.5 cent gain the pound has made this week, and the possibility the balance could yet shift back again. If you are sending money abroad in the near future, or making a currency transfer (particularly a euro transfer ) do make sure you speak to your Foreign Currency broker at Currency Index – we help you stay well informed and well ahead of the markets.