Analysts at Barclays have confirmed they expect the pound euro exchange rate (GBP/EUR) to grind higher through the course of 2014.
The pound to euro exchange rate is seen trading 0.22 pct lower on a day-to-day basis at 15:28 in London. The decline comes at the start of what will certainly be a busy week for GBP; in particular we expect traders to take risk off the table ahead of Wednesday's busy docket.
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Today we hear from analysts at Barclays who have confirmed they are forecasting the pound to euro exchange rate to grind higher through the course of 2014.
Confirming previous 2014 exchange rate forecasts, in the latest FX Weekly communication to clients analyst Yuki Sakasai says:
"We expect EUR/GBP to grind lower, driven mainly by relative monetary policy outlook between the ECB and BoE, and maintain our one-year forecast of 0.77." (This is GBP/EUR at 1.2987.)
Further, "technical analysis also suggests medium-term downside in EUR/GBP and the local UK data this week are expected to be GBP-supportive overall," says Sakasai.
British pound slips lower in global FX trade
It's a quiet day on the global market place today with North America on holiday.
"The only notable move that we had in the foreign exchange market over the past 24 hours is in the British pound, which climbed to a fresh 4 year high against the U.S. dollar at the start of the Asian trading session. While there may be plenty of fundamental reasons for us to believe that sterling will strengthen this week, we can't ignore the intraday reversals in EUR/USD and GBP/USD. Both currency pairs extended their gains during the Asian trading session but the rallies fizzled in Europe," says Kathy Lien at BK Asset Management.
The analyst reckons the reversals were not caused by economic data and the 1% rise in the FTSE should have driven GBP/USD higher but the currency pair ran into a wall of profit taking above 1.68 and now appears vulnerable for a move back down to 1.66.
Momentum for sterling is to the upside
Despite the immediate threat posed by profit-taking Lien reckons the outlook still fundamentally favours sterling:
"Most of the U.K. economic reports that are scheduled for release should surprise to the upside. Tomorrow's inflation report may be softer but employment and retail sales should have improved in the month of January.
"The momentum in the British pound was triggered by the latest BoE Inflation Report, in which the central bank abandoned its unemployment rate threshold and significantly upgraded its 2014 GDP forecasts. As the year has just begun, they probably wouldn't have made these changes so quickly if the economy weren't gaining momentum.
"Therefore not only do we expect a tinge of hawkishness from the BoE minutes, but we are also looking for some healthy economic reports.
"The momentum in sterling is to the upside and we have every reason to believe that this trend will continue. There is no major resistance in the GBP/USD until 1.70. The currency pair could drop to 1.6650 on the back of weaker CPI but we will view this move as an opportunity to buy at lower levels."