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GBP to EUR Themes
- January 2012:
The GBP is currently enjoying strength against the EUR courtesy of strong demand for UK gilts (government debt / government bonds). The UK is seen as a stable bet when compared to the Eurozone which is undergoing significant upheaval with countries such as Greece threatening to default on debt. The problem could spread to other countries in 2012 and this will concern investors.
On the other hand investors are buying up UK debt as a safe play on the markets. This bids up the value of the GBP in contrast to the EUR. Analysts (Barclays Capital, Bank of America, UBS) see this interplay continuing into the year.
There is also the question of interest rates in the Eurozone. In the first quarter Barclays Capital see the ECB cutting rates down to 0.5%. This will eliminate any interest rate advantage bank accounts held in EUR would have enjoyed when compared to GBP accounts. This will likely push the GBPEUR rate higher.
In all, our forecast is for further gains in the GBP to EUR in the first half of 2012.
RBS provide the following summary:
UK bond holders trade off return for security. Investors are still very nervous about the global economy. In fact, they were so nervous that they were even prepared to pay for the privilege of lending £700 million to the UK government.
Being seen as a safe haven is good news for the UK (and the GBP relative to the EUR) because it means the Government is able to borrow money at a low price. But there is a worrying side as well.
Investors don't usually agree to accept a negative real return on their money. That they have done so reflects the fear of unresolved Eurozone tensions and nervousness about the outlook for the global economy.
"These levels, and slightly higher ones in EUR/GBP, should make excellent GBP buying opportunities." Read More....
GBP to EUR: Latest News
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- The GBP to EUR is a bright spot on a day when markets are showing a renewed sense of fear on the Eurozone outlook
- GBP to EUR technicals: 0.8500 level held firm and the EUR failed at its first major hurdle
- Technical outlook for the GBP to EUR exchange rate: Go short on the breaking of 0.8315 for EURGBP say RBS
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