The euro pound exchange rate has surged higher as we move through mid-March bringing to an end a period of solid gains for the pound sterling.
The EUR-GBP currency pairing is seen a full percent higher at the time of writing; a massive rise by any standards. As we head towards the weekend we see the pair settling at 0.7177.
The euro dollar exchange rate was meanwhile also sharply higher above the 1.10 level following the FOMC event which was a USD negative.
We now see EURUSD consolidating safely above the 2015 lows.
“Correction is healthy and needed as the RSI recovers from 15,” says analyst Luc Luyet at Swissquote Bank who sees the move higher in euro as “a bounce back as the deeply oversold conditions triggered some short covering.”
The heavy drop in EUR/USD and EUR/GBP appears to have a lot to do with the self-fulfilling prophecy of traders explicitly targeting 1.05, then the parity.
“The first target has been achieved. And next week will perhaps be another challenge for the single currency; EUR will step into the FOMC decision week without having reached any agreement with Greece. Tensions between Greece and Germany mounts,” warns Luyet looking at the risks that still lie ahead.
Below: Euro pound rallies off lows.
FOMC is Key Event to Watch
Will the euro exchange rate recovery be boosted by the March FOMC event?
Markets remains focused on US economic data although the Feds decision has long since moved away from strictly measuring the economic backdrop.
The argument that since inflation remains benign and growth marginal, why start official tightening, has merit.
“However, we suspect members are starting to get uncomfortable with such prolonged accommodating policy and the prospect of having not real tools should the US get hit with an economic shock,” say Swissquote.
Analysts believe the Fed will take this opportunity, while the economy is healthy, to cautiously head into the hiking cycle.
This week FOMC will see the removal of the word “patient” in the accompanying statement signalling a rate hike in June.
It is clear that the removal of this one word is widely expected – and therefore there are heightened risks the word remains.
If so then the downside risks to the dollar could increase and the euro dollar could then put itself firmly on track to test 1.10 once more.