Pound ROCKETS as investors turn attention from Brexit to Frexit amid ECB rates nod

And the markets are showing signs of a ‘head and shoulders’ pattern which appears to show that the UK’s deflation against the euro is at an end, say experts. 

Analysts are warning that the markets are turning their attention away from Brexit and towards France potentially leaving the EU – dubbed Frexit. 

Fawad Razaqzada, an analyst with brokers Forex.com said: “The focus is slowly turning away from Brexit to a potential Frexit with upcoming French elections in April”. 

Now the ECB has confirmed its Quantitative Easing strategy is coming to and end as it faces increasing pressure from Austria and France on rates rises.

Executive board member Benoît Cœuré, who is responsible for markets, said today that the central bank is plotting an interest rates rise.

The news came just a day after an unexpected slump in German inflation led to suggestions that confidence in the ECB’s economic programme is wearing thin.

Mr Cœuré said that the bank is reassesing the “the medium-term price stability outlook” and that they are reacting to “asset purchase programmes”.

He added: “Should we conclude that an adjustment is needed, we should not hesitate to adapt our communication.

“Ultimately, also the choice of sequencing of policy instruments will be the outcome of our regular assessment of the medium-term price stability outlook, reflecting the state-dependent nature of our expectations of the horizon over which our policy instruments are likely to be maintained.”

The markets reacted today by catapulting the pound to a one month high against the euro at £1 to €1.17.

Paresh Davdra, CEO and Co-Founder of RationalFX, said: “The pound surged against the euro as German inflation figures disappointed investors. 

“The euro fell after Germany’s inflation figures fell short of expectations in what could prove to be a setback for the ECB’s monetary programme. Reaching a one-month high against the euro, the pound demonstrated strength following the triggering of Article 50.

“The unexpected slump in German inflation figures could further dent the already limited confidence in the ECB’s economic programme, though it has helped in easing imminent pressure off of the ECB, as the Eurozone inflation reached two per cent in February. 

“Analysts will be watching closely to see how the ECB responds – and if its reaction will prove advantageous to the pound.”

Meanwhile there are bullish predictions for the pound with the suggestion a ‘head and shoulders formation’ is occurring when a market trend is in the process of reversal.

Richard Perry, a technical analyst with Hantec Markets, said: “A short-covering rally is the process whereby a one-sided bet is reversed and market participants are forced out of the market. 

“With betting against the Pound being so popular and reversal in the trend can set off a chain event of traders closing these bets as their stop-losses are triggered.”

Joshua Mahony, foreign exchange and markets analyst at IG, said: “Much like GBP/USD, we are seeing GBP/EUR forming a symmetrical triangle, which is perceived as a continuation pattern.

“Ultimately we would need to see a break through $1.2041 to complete a bullish inverse head and shoulders formation. Until that occurs, there is still a good chance we could see another move lower for the pair”.