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British Pound Falls to Record Low Versus Euro - Will These Moves Continue?
Thursday, 11 December 2008 22:52:41 GMT  |  Terri Belkas, Currency Strategist
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The British pound gained some ground on Thursday thanks to broad US dollar weakness.

In fact, GBP/USD was able to break above major trendline resistance at 1.49, suggesting that a bigger bullish retracement may be in store despite the dour outlook for the UK economy. One place where UK fundamentals are hurting the British pound, though, is in EUR/GBP, as the pair hit fresh record highs of 0.8910 on Thursday. The moves helped EUR/USD break above resistance at 1.3070 and rocket higher throughout the day.

Conditions in the Euro-zone are by no means strong, but they are comparatively better than in the UK as the credit crunch has choked off the finance sector that has previously allowed the country to thrive for so long. Furthermore, European Central Bank Governing Council member Axel Weber indicated today that he “would like to avoid” cutting rates below 2 percent, as it would imply that real interest rates were negative. With the ECB benchmark rate already at 2.50 percent, Mr. Weber’s comments suggest that monetary policy will not be made much more accommodative in coming months. In the UK, on the other hand, the Bank of England is anticipated to continue cutting rates aggressively, as BOE Governor Mervyn King has declined to rule out cutting rates to zero in the past. As a result, the odds remain in favor of EUR/GBP strength. Focusing on EUR/USD, Thursday’s rally led the pair headlong into trendline resistance going back to mid-July at 1.3405, but it may only be a matter of time before we see a break above this level to target 1.3750.

Related Articles: Euro Accurately Forecast to Rally Against US Dollar, British Pound Outlook Unclear Against Sinking US Dollar

For the entire summary of the day's economic developments visit Daily Fundamentals.

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