Exchange rates: Spotlight to fall on European central banks

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Category: Exchange Rates

Published on Monday, 05 September 2011 12:41

Written by Rob Samson

RBS favour shorting the EUR and GBP against the NOK on the currency markets this week.

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The GBP to EUR exchange rate is 0.123% lower on the day with 1 GBP = 1.1410 EUR.

Exchange rates are likely to be driven by the outcomes of the various European central bank meetings due this week.

Importantly, for the euro exchange rate in particular, currency markets will be looking at the German Constitutional Court ruling on the EFSF on Wednesday.

"Euro-zone sovereign debt worries returned to the spotlight last week and should the German Constitutional Court rule that a parliamentary vote will be required for Germany to participate in any future bailout, this is likely to be another negative for the EUR amid rising political tensions in the richer Euro-zone countries over bailouts," say RBS.

On Thursday, the ECB are expected to provide indications of a pause in the policy rate normalization cycle, a sign that sovereign debt worries and austerity plans are now firmly impacting interest rates.

Elsewhere, no change in policy is expected from the BoE on Thursday and a lack of yield will continue to weigh on GBP.

The UK services PMI fell more than expected in August - a worry given the large contribution of services to the UK economy.

Although there has been talk recently of GBP's merits as a safe haven, there remains the risk of weak growth derailing the government's austerity plans and renewed chatter around the UK's sovereign rating.

"This week we favour short EUR and GBP exposure versus the NOK, which has strong fundamentals and better resilience to weak global growth," say RBS.