Euro to Sterling (EUR/GBP) UPDATED: Predictions Suggest a Strong EUR Will Be With Us For Some Time Yet!

The euro sterling exchange rate came under renewed pressure on Tuesday with heavy selling stepped up in the afternoon session taking the EUR yet higher. ON WEDNESDAY we see the currency pair has settled down, but as the below comment shows, the potential for further declines remains. 

"The uptrend in EUR/GBP solidifies given the trend divergence between EUR and GBP. With trend and momentum indicators firmly positive, we remain buyers above 0.8500 (Sep-Oct uptrend bottom). First set of offers lies pre-0.8600 and the bets are mixed at 0.8530/50 area. Stops are seen below 0.8500," warns Ipek Ozkardeskaya at Swissquote Research concerning the ominous bullish setup in the EUR/GPB rate.

Monday's gains for the pound to euro were proven to be a mere pullback. Be warned, a dominant Euro is predicted to remain a key theme on global markets for some time yet.

In Tuesday trade in London we saw the euro to sterling exchange rate to be trading 0.22 pct up on Monday's close at 0.8561.

Note: These quotes are from the wholesale markets; your bank will subtract a discretionary spread from when passing on their retail rate. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering up to 5% more currency. Please learn more here.

Why is the euro so strong?

The key to understanding direction in the EUR/GBP exchange rate rests solely with the Euro at present.

And it is the bigger EUR/USD exchange rate that matters for the Euro at present - so any gains here will literally just drag the EUR/GBP up alongside in sympathy.

The US dollar is currently struggling as investors believe the US Federal Reserve will not begin tightenting policy until well into next year; as investors sell USD they are opting to buy EUR and EUR-denominated assets.

At present currency watchers should be aware that the Euro is predicted to remain favoured against the US dollar:

"EUR-USD is expected to remain firm, trading mostly around 1.38, if US data disappoint. Charts now see some further upside potential towards 1.3850-1.39, which is likely to bode well for our 1M strangle," says a morning note from UniCredit Bank.

However; note that there are increased doubts as to how long this euro strength can last; this could underpin GBP/EUR to some extent.

"The trend higher in EUR/USD has lost steam, reflecting the negative sentiment on Asian bourses and seemingly stretched positioning," points out Sverre Holbek at Danske Bank.

Will the pound recover?

And what of the pound? At present it would seem the GBP is in desperate need of some good economic news to convince the sellers to ease back.

Yesterday's Distributive Trends Survey from the CBI was certainly not the ticket.

Today we have some lending data from the Bank of England but we doubt this will be enough to attract attention.

Rather, all eyes will be cast to the first of the PMI releases due on Friday.

The Manufacturing PMI is tipped to read at 56.2; lower than last month's 56.7. This tells us markets are expecting the UK recovery to be slowing somewhat.

As such, expectations regarding GBP strength are being tapered back as well.

So for now, it would seem that we need something to go wrong on the Euro side of the equation to rescue the pound euro exchange rate.