The British Pound heads into the weekend on the back-foot against a strengthening Euro which has benefitted from the European Central Bank's relaxed approach to the single-currency's ongoing rise

The Pound-to-Euro exchange is back below 1.09 after European Central Bank chief Mario Draghi and his Governing Council indicated that they were relatively comfortable with the strengthening Euro.

There were concerns that the ECB might try and halt the Euro's rise lest it should stiffle economic growth and put a lid on inflation.

The Euro's rise was broad-based, with the Euro Index - a measure of the currency's strength according to the performance of a basket of key Euro-based pairs - rose 0.60% to reach 95.35.

The ECB cut its inflation forecasts modestly Thursday and raised its growth forecasts. The Euro rallied in response as there were concerns the forecasts would be cut more forecefully in the face of the rising Euro.

Draghi noted that some of the downward pressure on inflation is due to recent foreign exchange movements but he also said this situation had been influenced by “global factors” such as rising oil prices as well.

Political uncertainty and economic weakness in key G10 economies, such as the US and the UK, has been as much to do with recent movements in the Pound-to-Euro and Euro-to-US-Dollar rates as the firming recovery in the Euro area has.

Therefore, weakness elsewhere in the world, which the ECB is powerless to address, has also forced inflation forecasts for the Euro area lower. Indeed, the ECB believe the fundamentals of the Eurozone economy do justify the Euro's performance.

"Today’s comments from ECB president, Mario Draghi are confirmation the central bank is not ready to offer any details on the end of non-standard monetary policies," says Timothy Graf, head of EMEA macro strategy at State Street.

Expectations for ending non-standard monetary policies (quantitative easing a.k.a the asset purchase programme) are now likely in October.

Draghi said the ECB "has flexibility" around its bond purchases, meaning bond scarcity is not constraint on the bank, adding the central bank can continue with QE if the Euro area is not ready for tapering at its October meeting.

However, markets digested these as empty words and saw through the Bank chief's attempts to contain the rise in the Euro and Eurozone bond yields.

"A tapering of the purchase programme will have to take place from next year due to technical constraints," says Brendan Lardner, fixed income portfolio manager at State Street. "However it is clear from today’s meeting the majority of members on the Governing Council want more time to assess the incoming data to allow the relevant bodies within the bank to formulate plans for a gradual wind down of the programme."

Above: GBP/EUR exchange rate before and during the ECB press conference. Source: Netdania

Above: EUR/USD exchange rate before and during the ECB press conference. Source: Netdania.

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Euro Tipped to Go Higher Against Pound, by Some

The outlook remains slanted in the Euro's favour with a number of analysts telling us that the single-currency should experience further gains.

For Euro-bulls, normal service resumes and Joe Manimbo, an analyst with Western Union notes:

"The new wrinkle this time was that the ECB stood ready to increase – rather than decrease – stimulus if economic conditions should take a turn for the worse. Still, with the euro zone economy on a bullish path, Mr. Draghi’s caution fell on deaf ears. Given the solid shape of euro zone fundamentals, sooner or later, the ECB seems poised to roll back stimulus, a scenario that would give traction to Euro rallies."

In the Q&A, Draghi elaborated that the concerns regarding FX moves had increased since the July meeting and most Governing Council members were now concerned.

"However, Draghi did not take the verbal intervention to a higher level. In fact, what he said was already quite a lot considering how the ECB has addressed FX moves in the past," notes Tuuli Koivu at Nordea Markets. "Nevertheless, his words were not enough to reverse the course of EUR/USD. As a result, while we expect EUR/USD to fall back in Q4, the near-term direction remains upwards."

Don't Give Up on the Pound Yet

But analyst Karen Jones at Commerzbank is not overtly concerned that the Pound will suffer significant falls against the Euro at this juncture.

"EUR/GBP held steady yesterday post-ECB, but having recently severed its accelerated uptrend, the damage has been done near-term," says Jones.

"Currently intraday rallies are indicated to terminate circa 0.9210 and while capped here the market will remain directly offered," adds the analyst.

This suggest weakness in the GBP/EUR should find support at 1.0858.

The Commerzbank technical strategist believes the market remains likely to react back to the 23.6% retracement at 0.9075 and the four month support line at 0.9037. (This is GBP/EUR at 1.1019 and 1.1065).

But, "the longer term up-move remains intact above here," says Jones.

Get up to 5% more foreign exchange by using a specialist provider by getting closer to the real market rate and avoid the gaping spreads charged by your bank for international payments. Learn more here.