Pound-to-Euro exchange rate at 8-Month Lows, Leg Lower Looks to Extend towards 1.11

- GBP/EUR falls to lowest level in eight months

- Support levels at 1.11 could offer Sterling near-term respite

- Any strength in the Pound likely to be sold says leading strategist

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Pound Sterling has over the course of the past 24 hours suffered a decline to its lowest level in eight months against the Euro amidst a combination of Sterling weakness and an all-round recovery in the single-currency, which too had been under pressure of late.

At the midweek point one Pound buys 1.1146 Euros on the interbank markets, the lowest rate seen since November 28, 2017.

The move we are witnessing is part of a deeper run down to the well signposted level of support at 1.11.

Looking at the setup of the market there is little to suggest Sterling will not go lower: the Relative Strength Index - a popular indicator of momentum in the market is sitting at 34 (see the bottom pain in the graph below) and is therefore advocating for further losses.

Should the market break and head lower an obvious target lies at 1.11: this forms the bottom of a range treaded by Sterling since September 2017, and therefore there is a high likelihood that there will be enough buying interest in the market to support the Pound around these levels.

Mazen Issa, Senior FX Strategist at TD Securities, says GBP/EUR is "re-calibrating" to the downside with a move towards 1.11 which he describes as "a notable but likely level."

Of course markets never trade in a straight line and trends are often interspersed with periods of strength, and we would of course remain open to the prospect of a recovery in the Pound at some point.

The important thought to take onboard though is that any strength in Sterling is likely to be short-lived in nature.

"With summer conditions in full force, the MPC a long way from another hike (we anticipate another 9 months from now at the earliest), we look for domestic politics and external factors for GBP direction," says Issa. "We think that the market will be inclined to sell GBP rallies."

The British Pound suffered a decline to its lowest level in eight months on a ratcheting up of fears for a 'no deal' Brexit that would see the EU and UK slide into a WTO trading partnership when Brexit occurs in March 2019.

Both sides are far apart on what the future relationship will look like and markets believe time is running out to reach an amicable deal.

What we think is most likely is that both sides will extend deadlines to allow themselves to continue talking - but this is no good for those who want a stronger Pound as it merely extends the period of uncertainty and puts a recovery by the currency on hold.

We expect political noise to increase and thus no further rate action to be taken before March 2019, when the Brexit officially takes place," says David Alexander Meier at Julius Baer in Switzerland. "We remain neutral on the pound sterling until there is greater visibility on the Brexit question."

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