Euro exchange rate declines on 'euro breaking down' comments

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Category: Exchange Rates

Published on Tuesday, 23 August 2011 15:42

Written by Will Peters

However, according to analysts the outlook for the pound to euro is a mixed one.

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The euro dollar exchange rate is 0.125% higher on the day with 1 EUR = 1.4391 USD at 4PM in London.

The pound euro exchange rate is unchanged at 1.1561. 

Former Federal Reserve Chairman Alan Greenspan cast doubt Tuesday on the euro's ability to withstand the current debt crisis, causing the euro exchange rate to give up the bulk of the day's gains.

As risk-sensitive assets gave up early gains, traders pointed to remarks from Greenspan saying the euro "is breaking down," and that Europe's debt woes were harming U.S. economic growth prospects.

Within minutes, the euro fell from session highs above $1.4450 to below $1.44. The single currency also turned negative against the yen to buy Y110.13.

Outlook for pound euro

According to analysts the outlook for the pound to euro is a mixed one; "the technical outlook is mixed. The two clear levels to watch are 1.1550 on the upside (we've been repelled from here twice in August) and 1.1260 on the downside. A daily close beyond one of these levels should set the tone. In the meantime there is little in the way of clear direction," says Adam Solomon at money transfer UK specialists Tor Fx.

Looking back we see that the pound euro rate closed on Friday exactly unchanged on the week. In fact, despite the big movements in other markets the weekly closing price of Sterling/Euro has been stuck within a one cent range for six weeks now. Looking more closely at the daily action the Pound did benefit from a weak German growth figure last Tuesday, GDP coming in at just 0.1% growth for the quarter compared to 0.5% expected. EU GDP was 0.2% against 0.3% expected.

UK consumer price index for July edged higher to 4.4% from 4.2% for June. However, the interest rate makers at the Bank of England are firmly on the fence and in light of the economic softness evident elsewhere it will take more than this to push them off, especially while wage growth remains at a below expected 2.2% when bonuses are excluded. Public sector net borrowing fell to just £20m in July as a windfall levy on banks' balance sheets boosted receipts by £660m in the month, and lower local spending reduced outflows.