EUR/GBP reacts to decline in UK GfK consumer confidence

On Monday, EUR/GBP to some extent tracked the swings in the headline EUR/USD cross rate. The pair opened higher in Asia, but as contagion fears continued to do their job, the gains evaporated soon.

Sterling traders kept also an eye on the Office for Budget Responsibility (OBR) forecasts for UK economic growth. However, the OBR message was a mixed bag: 2010 growth was revised up from 1.2% to 1.8%, but growth for 2011 and 2012 was revised slightly lower by 0.2%-points to 2.1% and 2.6% respectively. So, the focus continued to be on the euro side of the story.

Cable also remained under pressure, as the dollar was the outright winner due to global risk aversion. EUR/GBP revisited Friday’s lows during the afternoon trade in Europe. A clear break didn’t occur (yet). Nevertheless, contrary to what was the case at the end of last week, the euro was fighting an uphill battle even against sterling. The pair closed the session yesterday at 0.8428, compared to Friday’s close at 0.8492.

This morning, the UK GfK consumer confidence came out at -21, a decline from the previous month and defying expectations for a stabilization. There was some volatility in the pair, but as of around 8:50 A.M. GMT on Tuesday, the EUR/GBP was trading at around 0.8412.

The UK economic calendar is empty further out today. So, the euro sage will again be the key driver. At the end of last week, sterling was not really able to regain much ground against the euro even as the euro remained under overall pressure. This was a bit different yesterday as EUR/GBP went for a test of the correction lows.

Content provided by: KBC Bank