Pound Euro Rate: Best GBP/EUR Exchange Rate of 2014 Out of Reach Again

However, a sudden reversal in GBP's fortunes has come following news that the UK could be about to be split up - polls show the race between the Yes and No campaign in Scotland has tightened markedly. Markets hate uncertainty, and this does not bode well for GBP.

At the time of writing the pound to euro exchange rate (GBP/EUR) is 0.12 pct lower than at last night's close at 1.2527. Consider that this week's high was witnessed at 1.2671.

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Best pound euro exchange rate of 2014? So Close, Yet So Far

The sharp move lower by the pound will be a worry for those looking to make a transaction. However, longer-term forecasts continue to suggest the outlook favours further gains in GBP/EUR.

The best rate of exchange seen in GBP/EUR was reached when the rate hit 1.2700 on the 21st of July 2014.

We are looking for that level to be achieved once more in 2014 provided a No vote is achieved in Scotland.  We also remain wary of how the levels leading up to 1.27 manage to provide such strong resistance to advances.

But, the Fundamentals Support GBP

That said we remain confident on the fundamentals - where the European Central Bank (ECB) is leaning towards expanding its balance sheet the Bank of England is looking to tighten. Indeed, the Bank is seen as the first major central bank to raise rates in the current cycle, something that will boost sterling long-term.

In a forecast note to clients released at the start of the new month, Bill McNamara at Charles Stanley tells us:

"After trading down to a low of 1.2482 in the middle of August the UK currency subsequently rebounded to the extent that it posted a (fractional) gain for the month.

"The weekly candlestick chart shows this has lifted it right back up to the upper end of its recent range and the overall impression is that sterling is now in a position to push on through its July peak, at 1.2674, and test its July 2012 high, at 1.285."

Euro Could Bounce in Near-Term

We should however be aware that the euro remains liable to a bounce as oversold conditions become entrenched.

Manuel Oliveri at Credit Agricole says:

"Speculation for the ECB to consider more aggressive policy action this week has increased considerably after Draghi indicated downside risks to long-term inflation expectations last week. Such speculation, combined with a still deteriorating capital flow situation, helped push EUR to yearly lows this week.

"Given however the potential for a market reassessment back towards a more conservative (but still cautious) ECB stance, EUR seems oversold at current levels.

"First of all, we believe that it is too early to expect the ECB announcing new aggressive measures this week. Second, it must be remember that ECB board members have reiterated they remain confident the June policy package will have its intended stimulatory impact on growth and inflation.

"These factors, combined with already elevated speculative short positioning, argue not only against further selling but rather taking profit ahead of this week’s meeting. From a more medium-term perspective however debate surrounding ECB QE argues we remain in favour of selling EUR rallies, especially against higher-yielding currencies like AUD."