Exchange Rates

Those holding out for high pound to euro exchange rates have been rewarded by a strong January rally; however Friday the 10th has seen fortunes swing around in rude fashion.

In mid-afternoon on we see the GBP/EUR exchange rate trading nearly half a percent in the red at 1.2054. Last night we saw the rate close well above the 1.21 level.

We could well be in for a period of decline and consolidation for the exchange rate.

(NOTE: All EUR rates here are taken from the spot markets. Your bank will charge a discretionary spread when passing on a retail rate. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering more currency. Please learn more here).

"EURGBP again fails to hold below 0.8250 (GBP/EUR at 1.2121) support level, as price rebounds and end the trading session above the level, forming a spinning top candle. Therefore, we prefer to move to the sideline for now, awaiting a confirmation signal," says a technical forecast issued by ICN Financial.

Why was the British pound sold-off?

The culprit for the decline in GBP/EUR was today's latest industrial and manufacturing production figures.

It was shown that manufacturing activity and broader industrial output were both flat in November, from October.

Analysts had been expecting gains and the disappointment prompted some aggressive selling of Sterling.

Separate figures showed construction activity fell 4%, the sharpest monthly decline since June 2012.

Global markets cling onto gains, US dollar falters

Global markets continue to hold onto gains, despite a correction after the Non-farm payroll figures.

Payrolls in the US rose just 74,000 in December, much less than the 196,000 estimated by many analysts.  US bonds jumped after the news with the 10-year benchmark note yield dipping below 2.9%.

December was a weak month for job growth in the United States which was somewhat affected by bad weather.

"The figure surprised many with most investors believing the figure would come out strong due to pre and post-Christmas job creation. However, this was not the case. The unemployment rate fell 0.3 percentage points to 6.7 percent," says Lee Mumford at Spreadex.

The US dollar was hit hard by the news and this has allowed a host of previously under-pressure currencies to come back, including the Australian dollar.

A weaker US dollar also allowed gold to gain the most in a week following the payroll data as investors believed the worse than expected figure will increase speculation the Federal Reserve will slow the pace of tapering.

Over in Europe, bulls used the initial negative reaction to buy into the dip. However, gains couldn’t be maintained on Wall Street with the Dow Jones now trading in negative territory.