Pound / Euro Could be Heading Back to 1.30 Suggest Lloyds

The pound to euro exchange rate (GBP/EUR) has bounced off recent lows thanks to a positive view on the outlook contained in the Bank of England’s March policy meeting minutes.

The Bank told us that while the EU referendum will likely see them maintain interest rates at current record-low levels through much of 2016, the next move in rates will most likely be higher.

Talk of rising rates saw the British pound perk up across the board with the GBP/USD putting in the strongest performance over the past 24 hours.

The pound has bounced against the euro and is now at 1.28 having traded in the 1.26’s ahead of the Bank of England.

The outlook for GBP/EUR is more positive heading into the weekend than it was a mere 48 hours ago when we were talking of an impending failure in the market which could see the pair rush back to the early 1.20s.

The market has, of late, staged a decline back towards the bottom of the current 1.3071 to 1.2618 range, before seeing a sharp reversal following the FOMC event on Wednesday night.

“The range clearly remains intact, with our intra-day studies retaining a bullish bias for the coming sessions, suggesting a move back to the range highs can be seen,” says Robin Wilkins at Lloyds Bank.

Wilkins sees 1.2730/06 is intra-day support that would support weakness for the move higher.

However, looking at the medium-term, we must remember the trend lower remains intact and Lloyds warned earlier this week that there was a heightened probability that a break to 1.21 could happen.

That view remains valid, albeit probabilities of such a break have diminished following recent price action.

Wilkins believes eventually the exchange rate risks an eventual move lower to key long-term channel and Fibonacci support in the 1.25-1.2195 region.

Only a break above 1.3245/1.3422 would suggest those levels in the early 1.20’s won’t be reached and that a significant low is already in place for a move back towards the 1.3698-1.4285 region.

The MPC continues to judge that it is more likely than not that the Bank Rate will need to increase over the forecast period. We continue to expect the first increase in the Bank Rate to come in November this year – with the risks skewed towards a later hike – based in part on our expectation that the UK will vote to remain in the EU. 

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