Post-ECB Drive Sees British Pound / Euro Exchange Rate @ April Best
The British pound was a winner of the European Central Bank's (ECB) monetary policy meeting that saw the Bank opt to leave interest rates and policy unchanged.
The pound to euro exchange rate (GBP/EUR) has nudged above the 1.27 marker for the first time in three weeks on Friday as the UK currency's solid April run continues.
The advance comes as the main risk event of the week - the ECB's policy decision meeting - passes without incident.
In fact, we are now seeing the GBP/EUR sitting just above the 50 day moving average; we have noted for some time now that the supply of sterling at this technical marker tends to increase dramatically as markets bet on a resumption of the move lower whenever it is met.
If sterling can break and hold this level then the outlook becomes more assured for those holding out for better currency transfer rates as sell orders will likely be cleared out of the market.
While the GBP/EUR moved higher through the course of Thursday, action in the EUR/USD rate was more interesting.
The ECB left interest rates unchanged allowing the exchange rate to advance off levels sub-1.13.
But, President Mario Draghi then stood appeared before the press and gave an assured statement and question & answer session.
Talking of further easing was avoided allowing EUR/USD to hit a day's high of 1.1398.
However when the press conference ended the euro fell back to where it was ahead of the event. Notably, the pound-dollar exchange rate also took a dive confirming this pair as being remarkably exposed to the currency flow dynamics surrounding the event.
"This reversal caught many investors by surprise because the main takeaway from today's meeting is the ECB has no immediate plans to add stimulus nor did they feel that the currency was high enough to renew concerns about its impact on the economy," says Kathy Lien, an analyst with BK Asset Management.
Regarding the potential of a British exit from the EU, Draghi was sanguine:
"Is it enough to endanger the Eurozone area? The assessment of our staff is that this is limited."
He does however note though that Britain and Europe remain in a mutually beneficial relationship.
Draghi also suggests sterling could remain under pressure into, and even after, the referendum as financial market uncertainty persists.
Latest Pound/Euro Exchange Rates
  | Live: 1.146▲ + 0.15%12 Month Best:1.2162 |
*Your Bank's Retail Rate
| 1.107 - 1.1116 |
**Independent Specialist | 1.13 - 1.1345 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
Sterling Detaching from European Stock Markets?
Sterling is up sharply against the dollar and a host of commodity currencies.
Explaining sterling’s strong performance is actually quite difficult for us as the GBP has rallied without European stock markets.
We have noted that through April the pound has tracked the German DAX higher, but with the DAX lower in the wake of the ECB conference, and the pound notably higher against the dollar, we are seeing a disconnect.
The best way of explaining the moves therefore is that the pound is a passenger and taking advantage of post-ECB euro weakness and the dollar's continued all-round poor performance.
Domestic data is being flat-out ignored at present.
Retail sales dropped 1.3% on the month of March, matching the decline in December which was the sharpest since Jan 2014.
However commentators at both Lloyds and Barclays saw some positives in that quarterly data paints a decidedly more upbeat tone on the UK consumer.
Nevertheless, spending has now declined for 2 out of the last 3 months, which means we are likely to see another quarter of soft GDP growth.
Stronger public sector finances were credited for the resilience of the pound but at the end of the day what matters are jobs, wages and spending - all of which weakened in the month of March.
"Having traded as high as 1.4440, we are looking for GBP/USD to hit 1.4100 as the weight of slower growth weighs on the currency," says Lien.
