ENM: Euro pound exchange rate rally stalls; EUR slumps as fast money flies out of the Eurozone
The euro to pound exchange rate is half a percent in the red at 15:00 in London; EUR/GBP is quoted at 0.8484 - well of the 0.8717 high touched on the 1st of the month.
Please note these are spot market rates; your bank will affix a discretionary spread to the above numbers when delivering you a retail rate. An independent FX provider will however guarantee to undercut your bank's offer, thus delivering more currency. Please find out more here.
The euro's rally against sterling has certainly stalled and we could be in for a period of consolidation before any fresh attempts at recent highs can be attempted.
Fast money flies out of the Eurozone
The euro's broad-based rally appears to have stalled as the flow of investor money returning to the Eurozone stalls. Shaun Osborne at TD Securities explains that it could be heading back to the US - and in extension - the UK:
"With market sentiment still somewhat fragile, declining liquidity levels may have exacerbated some of the trends in the peripheral bond markets and helped prompt a broader under-performance of Eurozone assets relative to the US in the past couple of weeks, slowing the EUR rally as fast money rotates back to the US where the Fed seems intent on keeping policy supportive through the end of the year."
The direction for EUR is now downwards
Ahead of yesterday's ECB monetary policy announcement and press conference Jyske Bank analyst Leander Dreyer warned that it would be negative for EUR if Mario Draghi chose to comment on the recent appreciation of EUR.
He chose to do so – and EUR weakened as expected. Dreyer today says:
"Draghi said that a higher EUR rate would entail the risk of downward pressure on inflation.
"Moreover, Draghi voiced a fairly negative view of the economy, which is still showing signs of weakness. On the other hand, he had a positive view of the LTRO repayments, which he considers an indication of strength on the part of the banks.
"Our assessment is that Draghi’s comments are very decisive in respect of any further potential offered by EUR. Hence we assess that the comments will have the effect that 137.11 will be the peak this time around, and that the trend now points downwards."
