GBP/EUR Below 1.2, GBP/USD Struggling At 1.6: GBP LIVE on Mon 11/11
The first major data event of the week for the British pound sterling (GBP) comes on Tuesday with the release of October's inflation data. The global agenda is also light with the US Veterans Day Holiday mean hefty trading is unlikely today. The UK currency did however come under pressure against both the EUR and USD, a situation only likely to be remedied by Tuesday at the earliest. Nevertheless; we report on further positive exchange rate forecasts for the GBP/EUR.
Live rates as last update:
Pound euro exchange rate: 0.6 pct lower at 1.1916.
Pound dollar exchange rate: 0.3 pct lower at 1.5974.
Pound Australian dollar: 0.09 pct higher at 1.7086.
Pound New Zealand dollar: 0.22 pct lower at 1.9388.
Pound SA Rand exchange rate: 0.11 pt higher at 16.6100.
Please Note: All quotes here are derived from the wholesale spot markets. Your bank will charge a spread at their own discretion. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering more currency. Please find out more here.
Tuesday brings with it inflation data
Looking to Tuesday's agenda we have some inflationary data to look forward to. Inflation in the UK has been running persistently high; analysts are predicting tomorrow's Year-on-year figure for October will read at +2%, slightly down on September's 2.2%.
The monthly figure is predicted at +0.3%, down on last month's +0.4%.
Any large under-shoot in inflation will likely prove sterling-neg
16:21: GBP outlook bearish for now
Matt Weller at GFT warns of further declines in the GBP/USD rate ahead:
"Taking a step back, the pair remains solidly in the middle of the recent multi-week range from 1.5900 up to 1.6100. A recent 4hr Bearish Engulfing Candle suggests a shift to selling pressure ahead of today’s North American session, so our bias is modestly bearish for rates to drift lower over the next 24 hours."
16:05: GBP treading water until Wednesday
"We could see some sterling movement around the Bank of England inflation report on Wednesday, particularly if we see any signs of deviation from the Bank’s forward guidance path. The next tests of the UK recovery’s mettle in terms of cold, hard data will occur on Wednesday and Thursday of this week, when respectively, UK unemployment and retail sales data are due." - David Trumper at WorldFirst.
15:09: UK business confidence surges report BDO
UK business confidence has continued to improve in October and suggests the UK’s economic recovery will remain strong in Q4 2013 and could gather pace going into Q1 2014, according to the latest Business Trends report by accountants and business advisers BDO LLP.
BDO’s Optimism Index, which predicts business performance two quarters ahead, increased from 100.7 in September to 101.7 in October, outperforming the 100.0 mark that indicates the economy’s long-run average growth rate and echoing the CEBR’s prediction that the economy will now expand by 2.7% in 2014.
Expectations that growth may pick-up speed are being driven by an economy-wide recovery, with optimism in the services sector, which accounts for over three-quarters of the UK economy, rising to 99.9 in October from 99.2 in September and optimism among manufacturers rising to 109.6 from 107.0.
15:05: GBP/EUR at 1.25 year-end 2014
Earlier today we reported on the latest RBS exchange rate forecasts that saw GBP/EUR at 1.25 at the end of next year. This view is backed at Bank of America Merrill Lynch Global Research:
"With the EUR/GBP forecasts unchanged, implicit modifications to the GBP-USD forecast reflect the upward revision to the EUR-USD forecast. We target GBP/USD at 1.60 by end 2013 and 1.56 by end 2014. We continue to forecast EUR/GBP at 0.80 (GBP/EUR @ 1.25) by end 2014."
14:46: Beware USD strength
We have warned of further GBP/USD weakness ahead; now we hear from Bank of America Merrill Lynch Global Research who warn of dollar strength ahead:
"We think the market is still underpricing the risk of a January taper, and see further dollar upside as this re-pricing happens.
"Our flows data highlights the support for the USD has built in the past two weeks. Our proprietary flows show hedge funds, real money and corporates buying the dollar over the past two week s. Additionally, hedge positioning is only half the way towards its level prevailing between June and September, suggesting further USD upside potential should expectations for a January taper build, as we expect."
14:05: GBP/EUR under pressure; but a comeback lies ahead say RBS
The pound / euro exchange rate is under the hammer on Monday - a surprisingly strong rebound to last week's declines.
Nevertheless, RBS have today told us they are forecasting a break well into the 1.20's in coming months.
See the latest RBS forecasts here.
12:39: GBP/USD caution urged
Where next for the GBP/USD? Most likely sideways suggests Luc Luyet at MIG Bank:
"GBP/USD has broken the resistance at 1.6119, suggesting a potential double-top. However, the subsequent bounce highlights a persistent short-term buying interest. Monitor the hourly resistance at 1.6031 (intraday high), as a break would invalidate the double-top formation. A support now stands at 1.5957 (08/11/2013 low).
"In the longer term, prices have thus far failed to break the strong resistance area between 1.6302 (30/04/2012 high) and 1.6381. Given the deep overbought conditions, we would be medium-term cautious on GBP/USD and monitor closely the horizontal range between 1.5894 and 1.6260 (01/10/2013 high)."
11:47: Speculators cut back on long GBP exposure
Despite the improving economic position facing the UK, speculators have actually pared back their positive bets on the UK currency.
Net non-commercial GBP positions turned marginally net short in the week to 5 November, after being net long since mid-September.
"GBP has failed to benefit from some decent domestic data. There are a number of key releases this week with UK labour market statistics and the November Quarterly Inflation report. We expect GBP to remain resilient on the back of the underlying strong tone in the UK numbers," says a note on the matter from Lloyds Bank Research.
11:27: Why is the euro so strong?
The question of the euro's resistance to further selling is one of the main talking points on FX markets at present.
Boris Schlossberg at BK Asset Management gives his explanations:
"First and foremost the currency continues to be a beneficiary of capital flows. Asian central banks remain avid buyer of the unit partly for diversification reasons, but also for investment reasons as well. The Chairman of Bank of China noted last week that they view European equities as their favorite investment vehicles given their relative undervaluation and the prospect of recovery in the region.
"Secondly, despite the rate cut from the ECB, market analysts believe that there were were several dissenters on the board including Weidmann and Nowotny. Therefore some currency traders believe that the ECB may be nearly as accomodative as initially thought especially if the data from the region continues to show modest improvement and the final inflation readings are revised upward. Certainly there remains tremendous institutional resistance at the ECB to the kind of open ended monetary easing approach practiced by the Anglo-Saxon central banks of US and UK."
09:35: Sell the EUR/GBP on rallies
A weekly technical forecast note from TD Securities analyst Shaun Osborne suggests analysts take advantage of any spikes in the EUR/GBP rate to open sell positions:
"The September/October correction in EUR/GBP extended higher than we expected (briefly above 0.85 resistance and the 200-day MA) but the rally took the form of a bear wedge pattern and the sell off (bearish outside week) and break below the base of the consolidation last week generated good follow-through selling interest this week.
"The market has steadied in the low 0.83 area today, raising the risk of a minor correction but the bear wedge breakdown targets a drop to 0.8050 (GBP/EUR @ 1.24) over the next 2-3 months and we think modest rallies to the 0.84 area might provide an opportunity to establish short positions. Look to sell EUR rallies."
08:45: A soft start for sterling
Sterling has lost ground on Monday; the GBP is now well below the 1.2 level against the euro. For further gains north of this level we would look for a decided improvement in the UK employment picture and broader EUR weakness triggered in the EUR/USD exchange rate. Patience for sterling bulls is thus required.
08:35: Labour data to form this week's major focus
This week’s UK labour market data should be a major focus for the British pound (GBP), with the recent strong set of UK data suggesting potential for the ILO unemployment rate to decline this month.
08:32: Is a GBP correction higher on the cards?
Technical drivers are to be key today thanks to a lack of solid economic data.
GBP fell back on Friday, in part because of disappointing trade numbers, but the underlying strong tone to the UK numbers should prove more important medium term.
Contradicting our opening note from UniCredit is Lloyds Bank Research:
"Despite the strength of the USD in the last week, the major support area at 1.59-1.5960 in GBP/USD has held so far, and yield spreads still suggest it should continue to hold for now. On a break, we would expect a move to 1.5750, but for today we would expect to see some corrective activity above 1.60," say Lloyds Bank Research.
08:00: GBP unlikely to break above 1.6
"The strong US employment report may keep cable on a sluggish tone, still below 1.60 ahead of the BoE’s Inflation Report on Wednesday. Likewise, EUR-GBP is likely to further consolidate at around 0.8350." - UniCredit Bank.