Euro Could Find Itself Stuck at 0.86 Level Against GBP for a While Yet

The euro hovered near a five-week high against the greenback but gave up some of its overnight gains ahead of this morning’s market open.

A just-released client note from Commonwealth Foreign Exchange notes that the EUR could come under pressure later this week:

"The euro remains supported by recent strength in economic data from the 17-member bloc, which suggested that the economy may have bottomed. Indeed, such a scenario remains encouraging, but so far, the extent of any economic stabilisation may not be sufficient to alter the very dovish monetary policy outlook from the ECB.

"This week’s ECB meeting is expected to see the central bank reiterate its pledge to keep rates very low for a considerable period. Commentary from ECB President Mario Draghi this Thursday that maintains that dovish policy outlook would likely cap the single currency’s upside."

Camilla Sutton at Scotiabank says she does not see this week's ECB meeting pushing the EUR in substantial fashion:

"We do not expect a catalyst sufficiently large to push EUR outside of this range, even as this week’s ECB meeting looms."

On the flows front, "the all stock $35bn merger between Publicis and Omnicom is unlikely to have a material EUR impact," says Sutton.

British pound: BoE could limit any potential upside

We get the distinct feeling that the euro pound exchange rate could find itself locked in stalemate this week, particularly if we consider both currencies are likely to be hampered by central bank policy.

Commonwealth FX say:    

"The British pound remained within striking distance of a one-month high against the U.S. dollar overnight. The pound has benefited greatly over recent weeks from the general pullback in the U.S. dollar and from surprisingly strong U.K. economic data that has reduced the risk of near-term easing from the BOE. This week’s Bank of England meeting is not expected to result in any changes to monetary policy.

"However, the BOE could repeat its guidance from last month, where it tried to keep market expectations of any tightening of policy anchored. Such a scenario would limit GBP’s gains."