Pound to Euro exchange rate in significant turnaround on currency markets, GBP-EUR in classic risk-on / risk-off play

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Published on Friday, 22 June 2012 13:47

Written by Rob Samson

The pound to euro exchange rate is 0.24 pct down on yesterday, GBP-EUR is at 12408 - this representing a significant turn-around for the currency pair since the start of the day.

The turnaround for the GBP-EUR comes in line with a recovery on global FX markets through the course of the days trading. (Latest pound euro forecasts on our IMT site, access via this Facebook entry path).

Equity markets had been sharply lower in the European morning session, but as the build up to the North American open continued we saw risk appetite grow.



The movement in the pound euro pair would suggest that we are seeing a return to the classic risk-on / risk-off relationship where the sterling is bid up in times of market stress as investors take money out of assets exposed to the Eurozone and put them into the safety of the sterling.

This relationship has been compromised somewhat in the recent round of Central bank action - expectations continue to grow that the Bank of England will inject more money into the UK economy.

These expectations had hurt the pound, but now it would appear an additional increase in the BoE's balance sheet of 50bn GBP is fully priced in.

With regards to the euro vs US dollar pairing, the EUR traded in a tight neutral range along with the rest of the G10 currencies, consolidating yesterday’s sharp slide. The turnaround we have seen from the mid 1.27 area though – the second failure at that level – appears to have set a decent top in place.

The break below the short term channel support – around 1.26 – also suggests an end to the June rebound. That said, we look for a break of the 1.2450 zone as a key trigger for the next leg lower.