Currency markets have extinguished the euro’s hard-won gains registered at the beginning of the first week of February.
Eurozone PMIs were slightly better than expected in the mid-week session but this was not enough to allow the single currency further progress.
The euro dollar exchange rate (EUR/USD) attempted to close back in on 1.1500, but stopped at 1.1485 – “confirming the pivot role of the EUR/USD 1.1460 mark, and this morning slipped very close to EUR/USD 1.1300, a level from which it rebounded,” notes Asmara Jamaleh at Intesa Sanpaolo.
The euro to pound exchange rate is meanwhile quoted at 0.7471 while the pound to euro (GBP/EUR) can be seen at 1.3870.
PS: The above are inter-bank wholesale quotes. Your bank will affix a spread at their discretion when making international payments. To get closer to the market we suggest considering an independent provider, they have delivered up to 5% more FX on occasion.
Correction Lower Prompted by ECB Decision on Greek Bonds
The recent turnabout in fortunes for the euro came as the ECB surprises markets stating that on 11 February the exception made in favour of Greek bonds being accepted as collateral will be removed.
“On the announcement, the exchange rate immediately weakened by almost 100 pips. It then recovered around 50 pips this morning on the stronger than expected trend of German orders, but the recovery seems half-hearted and could be fully reabsorbed in case of especially favourable surprises from US data (tomorrow’s Employment Report),” notes Jamaleh.
British Pound Continues to be Bought
The wedge driven between the euro and pound sterling continues to exert pressure - the GBP outperformance of late is driven by three consecutive stronger-than-expected PMIs which confirm the UK growth story remains intact.
The February BoE meeting did not supply any changes to policy, as expected.
“On the other hand, next Thursday’s inflation report (12 February) will be crucial, with a lowering of inflation and – in part – growth forecasts,” notes Jamaleh.
“If the revision of inflation proves to be temporary, there is still a good chance that the BoE will in any case start to increase rates this year (end of the year), which would contain – short-term – downside on the pound (against the dollar).”