GBP/EUR: Path Higher Cleared as Month-End Rebalancing Favours EUR and USD
- Written by: Gary Howes
The pound sterling to euro exchange rate has failed to get a lift despite solid economic figures being announced on the last trading day of the month.
The British pound exchange rate complex continues to struggle despite some solid figures confirming the UK economy to be the best performer in the G10 space.
The second revision of GDP came in line at 0.7% with the underlying data showing very good strength.
Preliminary Business investment rose a whopping 2.9% versus 1.6% while exports shot up 3.9% versus 2.0% eyed.
“Overall the numbers suggest that UK economy continues to be one of the best performers in the G-10 universe and that BOE policy path will likely turn to tightening early next year should the momentum continue,” says Boris Schlossberg at BK Asset Management.
In the wake of the data the pound fell lower towards 1.5365 against the US dollar.
“Part of the reason for the move may have been end of the month flows especially in EUR/GBP which has been extraordinarily volatile this week due to the turmoil in equity markets. With sterling showing strong support at the 1.5350 level the pair may stabilize as the day progresses and may rally towards 1.5450 as traders turn their focus back to fundamentals,” says Schlossberg.
Latest Pound/Euro Exchange Rates
  | Live: 1.1391▼ -0.13%12 Month Best:1.2162 |
*Your Bank's Retail Rate
| 1.1004 - 1.1049 |
**Independent Specialist | 1.1232 - 1.1277 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
Pound to Euro Exchange Rate Still Has Hope
The pound has fallen from the 1.44 region down to the 1.36’s in August.
As our below chart shows this weakness should not be unexpected; we do see the prospect of a solid recovery from here.
Whether or not the best rates of 2015 are reached once more is questionable. Rather, the broader sideways motion is expected to hold.
We would watch for the GBP/EUR bottom to be defined in early September. Beware of negative data though – if the PMI series in early September are poor there is the chance that a break lower through 1.36 transpires.
Month-End Flows Favour the USD
Analysis from Barclays suggests the passive rebalancing of hedges at month-end to lead to decent amounts of USD buying against all of the major currencies.
"Renewed concerns about the health of the Chinese economy led to a bout of global risk-off moves causing extreme losses in equity markets all across the board. The market value of the US equity market (because of its size) fell significantly relative to the rest of the world, while gains in bond markets were moderate. Our model, which works under the assumption that static FX hedge ratios are maintained, shows strong USD buying signals into month-end against major currencies," says a note from Barclays.
