EUR/GBP: Euro Extends Gains on Buoyed Investor Confidence

The Euro is set to extend the week’s gains opposite the British pound on buoyed investor confidence for the single currency. Corporate updates on fourth quarter earnings are driving the demand for the European asset, not to mention stronger-than-expected U.S. jobs data.

“It’s a story of Euro strength,” said Steven Barrow, head of Group-of-10 research at Standard Bank Plc in London. “Against the Pound what tends to drive that is not just an improvement in sentiment towards the Euro and the Euro-zone crisis, but also a sense that if this pressure continues to lift, money-market conditions may tighten in the Euro Zone.”

Things are looking bright for the Euro Zone, as International Monetary Fund Chief Christine Lagarde acknowledged that Greece had made progress with economic reforms. The IMF board has recently agreed to pay the next aid tranche to Athens under the country’s 240-Billion-Euro international bailout, though Lagarde urged the indebted nation to do more to boost productivity and lower prices.

In a sign of positive prospects for the 17-member nation currency, European equities closed higher yesterday, and are anticipated to do so again today. A boost from the US jobless claims and the housing starts reports also provide further reason to take on the risks of investing in the Euro.

Meanwhile, the UK economy contracted in the fourth quarter and could even risk slipping back into recession in the first three months of 2013, according to an e-mailed report from London-based Fathom Financial Consulting today. “Whether growth in Q4 turns out to have been slightly positive, or slightly negative, the picture remains one of underlying weakness,” the report said. “Whichever way you look at it, the UK economy continues to bump along the bottom.”

A long position is advised for the EURGBP today, considering these fundamental news. Be on the lookout for probable technical price corrections, however.

Aviv N. Shapiro is a Senior Research Analyst and Business Development Officer for AlgosysFx.