Giving up: Pound threatens to break into 1.16's once more

The pound to euro exchange rate is 0.4 pct down on Monday night's closing rate; GBP-EUR is threatening to break back into the 1.16's with the rate at 1.1704 at 12:40.

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However; the outlook for sterling is certainly by no means all doom and gloom with the promise of an uptick in economic activity sure to provide steady support for the UK currency going forward.

RBS have today told clients they are forecasting 0.5 pct growth for UK economy in Q2 2013.

Ross Walker, RBS European Economics, says:

"A combination of favourable base effects (in industrial production but also, to a lesser extent, construction) alongside a marked rebound in a number of key surveys (notably the services PMI) underpin our 0.5% Tracker estimate.

"At this stage the Q2 Tracker estimate is heavily dependent on survey inputs and the risks are that subsequent ONS data will result in it being scaled back. Still, the breadth and depth of the improvement in the high-frequency data and surveys in Q2 leaves us more confident that, at the very least, the 0.3% pace of expansion in Q1 will be maintained."

"The surveys may be exaggerating the pick-up in GDP and the UK will not be able to buck any deteriorating global trend. But, in the near-term, the UK GDP data are likely to show a clear improvement – probably an acceleration in Q2."

Euro defies broad-based market sell-off

So while the UK currency can look forward to firmer economic conditions to underpin its levels, what of the euro?

The euro's robust nature is admirable with the shared currency avoiding much of today's broad-based market sell-off.

"The EUR is actually well supported, defying most of the signals from other markets and within the FX space right now, but the 1.3300 level has held EURUSD so far and is a key pivot above spot. We still favour a lower EUR in the months ahead although we look for a stronger sell signals before jumping more heavily into the bearish camp," says Shaun Osborne at TD Securities.

Boris Schlossberg suggests euro strength could be extended: "for the time being the EUR/USD remains remarkably robust and if it can take out the 1.3310 level in North American trade it may rise to 1.3350 on momentum alone, but if the newsflashes out of Germany prove troubling, the pair could quickly sell off towards the 1.3200 figure."

The Bank of Japan’s decision to hold the line on policy overnight was a disappointment to a market that has grown accustomed to ever more accommodative central banks.

Equities and commodities have responded with heavy selling, and bonds are extending recent losses.

In the FX space, commodity currencies are the underperformers.