GBP to EUR looking cheap at current levels

Thursday, 23 June 2011 11:04

The pound to euro rate is 0.391% higher on the day with 1 GBP = 1.1230 EUR.

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Technical analysts at RBS have suggested that the EUR GBP rate is looking cheap at current levels (Note: When looking at technicals we reverse the GBP to EUR).

William Moore at RBS writes:

"Again just short of my fade zone from yesterday but still depicted how choppy these markets are, today the closer that the market gets to the 0.8857 level the cheaper it gets and I think that sell offs should be bought.

"There is also some strong support at 0.8813 have no inclination that the market will enter a new trend in the short term Strategy: The closer this market gets to 0.8857 the cheaper it gets, buy the market 25 pips either side of there looking back to 0.8927 onto 0.8971 potentially."

On the fundamental front it is noted that escalating concerns towards the global economic outlook weakened the Pound to the lowest level in 11-weeks against the Dollar and the market seems to be plummeting to a move under the key 1.60 level. Short-sterling futures rose as investors continue to curb bets on higher interest rates with the overnight interbank average suggesting policy makers will leave rates unchanged until April 2012.

The result of the BoE minutes were largely factored into the market but the prospect of further quantitative easing and slowing growth has severely weakened Sterling sentiment. It is not inconceivable that given the recent tone of the second quarter data that the UK economy may contract in the three months to June, as the key sectors continue to slow.

The Pound also declined 1% in value against the Euro yesterday, slipping towards 1.12 by the close of trading last night, despite the threat of a Greek default and contagion to other EU nations with high budget deficits. While UK inflation is 4.5%, Mervyn King said last week that the surge in consumer prices is temporary.

The UK currency declined against the U.S Dollar once more overnight, slipping to a fresh 12-week low, in anticipation of a report that is expected to show an index of retail sales fell for a second month in June. The report from the Confederation of British Industry is expected to show that retailers saying that sales volumes increased outnumbers those reporting declines by just 13 percentage points.

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