GBP/EUR Exchange Rate Fights Back, Can the Recovery Last?

Heading into the weekend the GBP to EUR conversion has managed to recover part of the substantial ground it lost on Thursday the 7th of January. Can the rebound last?

The British pound suffered a notable decline on Thursday the 7th when global markets took a massive tumble.

This nature of the decline confirmed that in these significantly risk-off environments the euro is preferred to the pound as a safe-haven asset.

Friday, so far at least, appears to be about recovery with the FTSE 100 pre-market and other major indices putting on decent gains with both China and the United States' labour market setting a positive tone.

Pound sterling caught some buying interest early on when markets reacted positively to news China had removed the the 'circuit breaker' which rather than preventing market turmoil created massive problems to the working of the stock markets in that country.

The pound to euro exchange rate has moved higher in sympathy with the recovery in other risk assets.

The best exchange rate of the day was recorded at 1.3475 however following the release of outstanding employment numbers from the United States.

At the time of writing we are quoting 1.3449, banks are offering you money transfers in the region of 1.31 and independents are offering rates around 1.33.

Sterling-watchers will note these conditions also suit the likes of the commodity currencies which are also staging a massive comeback. The Australian, Canadian and New Zealand dollars are all recovering nicely and the pound is off its best level in weeks against all three.

The South African rand is up a percent on last night's close against the British pound.

Latest Pound/Euro Exchange Rates

	Live: 1.1455▲ + 0.1% 12 Month Best: 1.2162
*Your Bank's Retail Rate	1.1066 - 1.1111
**Independent Specialist	1.1295 - 1.134 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

Employment Data Provides Boost for Stocks, the Dollar and the Pound

Markets had expected the US to add 200K jobs in December - instead the economy added a whopping 292K.

The woes presented by China are being cancelled out by the robust US economy and those assets that benefit when global sentiment is positive have risen. The pound sits above the euro in this scale, hence the GBPEUR recovery. 

“It’s far too soon to know definitively if Fed Chair Janet Yellen and Co. made the right decision in raising interest rates last month. However, December’s well above expected non-farm payroll figures will confirm her assessment that the world’s biggest economy is in rude health," says Dennis de Jong at UFX.

Can Sterling/Euro Move Higher?

The key, we have argued before, is the 1.35 area. This forms a long-term support level below which sellers of the UK pound tend to enter only briefly.

We had expected this level to resist the December sell-off, and at the start of 2016 it appeared that this was indeed the case.

However, the extraordinary nature of the sell-off mid-week saw that level crack. For the GBP to EUR conversion, now that the 1.35 floor has given way we may be forced to backtrack on our views that January could see a recovery in the exchange rate.

So what we now have is the support zone between 1.3345 and 1.34 playing its part. This level represents the October 2015 lows. It was from this level that the pound to euro pair was able to stage a recovery to just below 1.43.

Could history repeat or will these levels prove as effective as a chocolate fireguard?

The key, of course is China, watch the global macro picture to draw your own conclusions as to whether the Chinese-inspired sell-off is actually over.

Brexit Fears Keep Sterling Under Pressure

Global economic concerns were not the only player in sterling's under-performance over the past48 hours.

"Sterling has been a key underperformer in the current session as the currency continues to suffer under twin concerns, risk aversion and Brexit. In terms of the former GBP remains a net under performer amidst episodes of risk aversion, due to the elevated current account shortfall," says analyst Jeremy Stretch at CIBC.

Stretch says the funding of that shortfall is increasingly in focus as Brexit fears have been fanned by a survey revealing that UK voters are increasingly predisposed to UK exit from the EU.

A poll by ORB detailed that 43% of British voters want to leave the EU while 36% would prefer to stay, with 21% undecided.

Even if the undecided voters were excluded 54% of voters favoured exit.