Analysis / Daily / Finance / forex

GBP/EUR Holds Two-Day Gain Before

The pound held a two-day gain versus the euro before the Bank of England releases minutes of its April meeting, when officials voted to keep interest rates at a record-low 0.5 percent for a 73rd month. Sterling was little changed against the dollar. The BOE notes may represent the last opportunity investors have to gain insight into the central bank’s thinking on policy until after the general election, with Governor Mark Carney and his colleagues on the Monetary Policy Committee in a quiet period until a government has been formed. The nine-member committee all voted to maintain rates at the March meeting. Investors are ruling out any rate increase before the middle of that year, Sonia forward contracts show. “Anything but 9-0 would be a surprise,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “Any deviation from that would impact the pound.” GBP is trading at 1.3912 against the euro this morning, after strengthening 0.4 percent in the previous two days. GBP/USD was at $1.4950. The May 7 election is forecast in opinion polls to be the closest-run in a generation, with neither the Conservative nor Labour parties forecast to gain enough votes to govern alone. That raises the likelihood of protracted negotiations to form a government, and even risks leaving Britain with its first minority administration since the 1970s. The election is “unbelievably tight,” Stephan Shakespeare, chief executive officer of polling company YouGov Plc, said in an interview yesterday.

The euro edged higher this morning but concerns over Greece’s debt negotiations continued to weigh on the single currency in subdued trade. EUR/USD was up 0.19% to 1.0757, off yesterday’s lows of 1.0659. The Greek government is no closer to reaching an agreement with its euro zone partners and the International Monetary Fund over economic reforms required to access remaining bailout funds, fuelling fears that the country could be forced out of the euro zone. Yesterday Bloomberg reported that the European Central Bank is considering tighter rules on Greek banks in return for emergency liquidity, adding to pressure on Athens. The euro was almost unchanged against the yen, with EUR/JPY at 128.54 and was close to three-month lows against the Swiss franc, with EUR/CHF at 1.0253. Trade remained subdued with little in the way of economic data to provide fresh direction for markets.

The dollar was mixed against major currencies yesterday, with the euro pivoting to modest gains against the greenback after euro zone finance ministers moved away from fixing a deadline for Greece to come up with fiscal reforms. The dollar ticked lower, with the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, slipping 0.235 to 97.98. In the stock market, it finished mostly lower with the Nasdaq managing to remain in positive territory, the Dow and the S&P 500 pulled back into the red (DOW -0.5% S&P -0.2% & NASDAQ +0.4%). The choppy trading on Wall Street may partly reflect uncertainty about the near-term outlook for the markets following the volatility seen over the past few days. Treasuries meanwhile have shown a lack of direction over the course of the trading session whilst oil prices fell on reports the Saudi led coalition declared an end to the Yemen campaign.

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