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Market Update - GBP EUR The Pound reached a 19-month high against the Euro at the beginning of this week as concerns over rising Eurozone bond yields sent investors fleeing into Sterling denominated assets. Standard & Poor's reaffirmed the UK's coveted AAA credit rating on Friday which gave the Pound a slender boost, but the GBP/EUR exchange rate has benefited primarily from Spain's dismal 10-year government bond yields.
The Pound to Euro exchange rate reached 1.2180 this morning, a level not seen since August 2010, as Spanish 10-year bond yields rose above 6.0%. Investor confidence in the single currency has fallen as the cost of borrowing money for the peripheral Eurozone nations has risen to alarming levels. The fear is that over-dependence on ECB funding has put Spain in a position where it will need a bailout package, which in turn will throw into question the strength of the Eurozone firewall and its capacity to prevent contagion spreading across the 17-nation bloc.
Last week was quiet in terms of data releases with the ECB's monthly report going as planned and German inflation coming in at 2.1% as expected. Although there were brief dips as low as 1.2080, not one 5 hour session closed with GBP/EUR below 1.2100 as Sterling made an aggressive push towards its 5-year moving average.
Looking at the week ahead and UK inflation is expected to remain at 3.4%, US Advanced Retail Sales are predicted to rise by 0.3% and the UK Unemployment Rate is forecast to stay put at 8.4%. The Bank of England's Minutes report, along with the G-20 Finance Ministers and Central Bankers meeting in Washington will attract interest from investors. But the primary concern for GBP/EUR will continue to come from rising Eurozone sovereign debt yields, and how aggressively investors decide to react to them.
The Euro may be able to hold on to exchange rates around 1.2000-1.2100 if investors decide to cash in on today's 19-month high, but if they opt to punish the single currency further it's possible that could see GBP/EUR reach 41-month highs in the region of 1.2400. Heads Up:
Summary of major upcoming data releases that we think may move the market. | Date | Time | Issuing country/region | Data Item | Market Expectation | Market Sensitivity | | | | | | | | | April 16th | 12:30 | US | Advanced Retail Sales (March) | 0.3% | | | April 17th | 08:30 | UK | Consumer Price Index (YoY) (March) | 3.4% | | | April 17th | 13:15 | US | Industrial Production (March) | 0.3% | | | April 18th | 08:30 | UK | Bank of England Minutes (April) | | | | April 18th | 08:30 | UK | Unemployment Rate (February) | 8.4% | | | April 20th | 08:30 | UK | Retail Sales (YoY) (March) | 1.3% | | | April 20th | 13:00 | US | G-20 Finance Ministers meet in Washington | | | | | | | | Sensitivity | | | | | | | Medium | | | | | | | High | | If you need any further assistance, or require a live dealing quote - please do not hesitate to contact me on 01736 335250 or send an email to info@torfx.com Regards,
TorFX 
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