The Pound to Euro exchange rate (GBPEUR) traded down by around 0.2% today following news that the UK retail sectore had not performed as well as expected in August.

GBPEUR dropped to below 1.8500, off its weekly highs of just over 1.2000. The Euro saw a strong finish to the week, with good gains against the other majors following the Fed’s surprise policy decision on Wednesday to make no change to their quantitive easing program.

Germany’s Federal Elections, due to be held on Sunday, will determine the near-term direction of the Euro but for the moment the currency remains fairly stagnant. Whilst a clear-cut result to the German elections is not expected, there is likely to be strong support for the Euro in the coming days.

The highlight of next week will be the release of Germany’s CPI inflation figures on Friday. If inflation in Germany is seen to increase, it is expected that the Euro will be strengthened. Until that time, the Euro is expected to trade on a fairly neutral footing against all the major currency pairs.

Optimistic meeting minutes by the Bank of England (BOE) and the Federal Reserve’s decision not to taper has led the GBPUSD to continue its bullish momentum. On Tuesday and Wednesday it gained over 250 pips in less than 24 hours, and, since the start of the month, the GBPUSD has climbed from around 1.5500 to 1.6050 – a gain over more than 3.5% in less than 3 weeks.

Anaylysts now widely believe that the longer-term forecast for GBP is not so bullish. The sharp appreciation in the Pound looks overdone and that Sterling is expected to fall back against the other majors over the coming months.

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