Pound euro declines could be limited; Euro rebound should run out of steam says KBC Bank

Last Updated on Tuesday, 14 February 2012 13:01 Written by Rob Samson Tuesday, 14 February 2012 12:59

The pound to euro exchange rate currently finds itself 0.24% lower on a daily basis at 1.1929.

How far can we expect this bout of weakness in the pound euro rate to last?

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According to KBC Bank, the euro's rebound could soon run out of steam:

"This week, Greece will again play its role in the run-up to the Eurogroup meeting on Wednesday. We assume that the break higher in the euro will be difficult ahead of the outcome of this meeting.

"Even after the meeting, there will be several issues that still need to be solved. From the UK side of the story will receive an in extensive update on the health of the UK economy (CPI, labour market and retail sales).

"On Wednesday the UK inflation report will reveal the input the BoE used to ‘justify’ last week’s rise in the amount of asset purchases. The tone of the report will remain soft.

"However, as is the case for the US, the question is how markets (bonds and currency) will react if the new eco data suggest that there might be no need for further policy stimulation anymore.

"It is still very early days to already anticipate a change in policy, only a few days after the established path was confirmed by the BoE.

"Nevertheless, also for EUR/GBP one can raise the question how long the euro will profit from the ECB moving to a less strict policy of ample liquidity providing. We assume that this rebound has its limits.

"These limits might come even closer if the eco data from the country of the ‘counter-currency’ of the cross rate would start to surprise on the stronger side of expectations.

"For now, this is nothing morning than a working hypothesis. We keep a close eye on the technical picture."