ENM: Euro pound exchange rate: EUR/GBP recovers amidst a broad-based retracement of yesterday's losses
The euro to pound exchange rate is 0.16 pct in the blue at 0.8536 while the euro dollar exchange rate is 0.73 pct higher at 1.2960. The euro has taken ground off sterling despite today's pro-GBP newsflow and price action.
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The pound boosted by MPC minutes
The British Pound rallied broadly as the Bank of England (BoE) Minutes showed another 6-3 split within the Monetary Policy Committee.
David Song at FXCM says:
"The BoE sounded more hawkish this time around as the central bank warned that the depreciation in the British Pound may dampen the MPC’s credibility on inflation, and it seems as though the majority is slowly moving away from the easing cycle as the committee sees above-target inflati"At the same time, the BoE warned that more quantitative easing may trigger an ‘unwarranted’ drop in the exchange rate, and it seems as though the central bank will stick to the sidelines throughout the remainder of the year as they anticipate a slow but sustainable recovery in Britain."
But the euro is today's winner - EUR seeing broad-based strength across the markets
Camilla Sutton at Scotiabank:
"EUR is retracing some of yesterday’s Cyprus induced losses, but EUR is still within this week’s range. The focus remains on Cyprus, the precedent its bailout potentially sets and the impact of weak political system in times of crisis.
"The parliamentary vote for the bank levy bail‐in failed to produce even one favourable vote, complicating the outlook for Cyprus even as markets are relieved that guaranteed depositors remain protected. There are rumours that Russia is considering providing a loan, which will aid Cyprus in raising the needed €5.8bn without impacting guaranteed depositors."
For Cyprus the risks have increased
Cyprus’ next step will be new negotiations with the EU and Russia.
The Cypriot finance minister has flown to Moscow to try to reach an agreement that can make Russia accept a large levy on holders of bank accounts of more than EUR 100,000. This would remove the burden from small depositors and thus make the crisis plan slightly more palatable.
Leander Dreyer at Jyske Bank says the risks have risen:
"We expect that an agreement will be reached, but the risks have increased markedly. There are however no prospects that the framework for the agreement with the EU will be changed considerably, meaning that Cyprus will probably have to compromise.
"We have traded at 128.44 as the lowest level after the rejection of the levy yesterday.
"Hence, the market breached the important support at 128.65-75, which represents the 200-day moving average. The important aspect is that we have not seen daily or weekly close below the level.
"If this happens, there is a great likelihood that EURUSD will continue significantly lower without the correction that we expect."
