forex trading outlook today - euro vs sterling exchange rate forecast 2012 ; Analysts said sterling's recent gains versus the euro mostly reflected euro zone debt worries after a European Union summit last week offered no hope the crisis will be resolved soon.
Danske Bank's Hydeskov said euro/sterling had potential to test 81 pence in early 2012 if the political uncertainty in Europe persisted. However, it would struggle to break below that level unless the European Central Bank cuts rates, reducing the premium for holding the single currency.
The ECB last week cut rates to 1 percent, matching their lowest ever level, while the Bank of England has held rates at a record low of 0.5 percent since March 2009. In October the BoE raised its quantitative easing target to 275 billion pounds to help boost Britain's flagging economy.
Some market players have predicted more gains for sterling versus the euro in the coming weeks as investors opt for the relative safety of UK government bonds over euro zone assets.
But Jane Foley, senior currency strategist at Rabobank, said although sterling was benefitting from some safe haven flows out of the euro zone, investors were likely to be unsettled by poor UK fundamentals, meaning any upside could be limited.
Any signs of dissent among members of the ruling coalition after Conservative Prime Minister David Cameron vetoed proposed EU treaty changes last week, to the dismay of many of his Liberal Democrat partners, could also weigh on the pound.
"I would say since last week the outlook for sterling has probably deteriorated. We have always been able to say while UK fundamentals are weak we have an austerity plan and a single coherent government, but that is less clear now," Foley said.
Danske Bank's Hydeskov said euro/sterling had potential to test 81 pence in early 2012 if the political uncertainty in Europe persisted. However, it would struggle to break below that level unless the European Central Bank cuts rates, reducing the premium for holding the single currency.
The ECB last week cut rates to 1 percent, matching their lowest ever level, while the Bank of England has held rates at a record low of 0.5 percent since March 2009. In October the BoE raised its quantitative easing target to 275 billion pounds to help boost Britain's flagging economy.
Some market players have predicted more gains for sterling versus the euro in the coming weeks as investors opt for the relative safety of UK government bonds over euro zone assets.
But Jane Foley, senior currency strategist at Rabobank, said although sterling was benefitting from some safe haven flows out of the euro zone, investors were likely to be unsettled by poor UK fundamentals, meaning any upside could be limited.
Any signs of dissent among members of the ruling coalition after Conservative Prime Minister David Cameron vetoed proposed EU treaty changes last week, to the dismay of many of his Liberal Democrat partners, could also weigh on the pound.
"I would say since last week the outlook for sterling has probably deteriorated. We have always been able to say while UK fundamentals are weak we have an austerity plan and a single coherent government, but that is less clear now," Foley said.
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