Spanish bailout fears drive Exchange Rates

Thursday 31st May 2012
Good morning. So far the week had been fairly flat, hence the lack of updates since Monday morning. Pound/Euro rates had been stuck at €1.25 and Pound/Dollar rates range bound in the $1.56 to $1.57 range. This all changed yesterday however and we saw market movement on the back of developments from Spain...

Spain concerns spook markets

Further concern in the Eurozone has caused the Euro to drop further, boosting GBP/EUR rates slightly. Concerns grew yesterday that Spain may be forced to seek a bailout, which caused the Euro to plummet yet again. It’s all to do with Bond yields; they are trading above 6.5%, very close indeed to the 7% level beyond which borrowing costs are deemed unsustainable over the long-term.

A rate consistently above 7% is considered to be unsustainably high and an indication that markets think a country will be unable to pay its debts; Greece, Portugal and the Republic of Ireland were at that level when they received international bailouts.

Spain's economy has become the focus of investor concern due to the uncertainty surrounding the fate of its banking system. On Friday, Spanish banking group Bankia, which was formed from the merger of several struggling regional lenders, asked for a 19bn-euro bailout, a much larger amount than had been expected.

This of course has not been focused on too much due to the more publicised problems in Greece, but the fact is Spain, Italy and Ireland are also facing significant problems. These concerns in Spain have caused the Euro to fall, hitting its lowest rate against the US dollar for two years, falling to $1.2433. Pound/Euro rates rose slightly to €1.2530 on the uncertainty.

Pound falls against US Dollar

There was an inverse effect on GBP/USD rates, as we saw Sterling fall to a 4 month low on the worries about Spain's banking sector problems and its rising borrowing costs. This has caused a flight to safety, with investors selling currencies that are perceived to be risky to the safety of the Dollar. This caused it to gain strength, making it more expensive to purchase.

Summary on where Pound/Euro rates may go

It’s still the EU problems driving rates at the moment. A weak Euro means people want their funds in perceived safer currencies such as Sterling and the US Dollar. This is keeping the Pound nicely supported against the Euro, however it has meant the stronger USD has become more expensive to purchase.

Moving forwards, many analysts are worried that the UK will need to pursue more Quantitative easing, indeed the Bank of England and International Monetary Fund both warned as much last week.

If they do pursue QE, it could weaken the Pound and make it a less attractive alternative to the Euro. This could well start to pull GBP/EUR rates back down.

But won't the EU problems mean the rate will keep getting better?

Not necessarily. Many clients reading the news are holding off buying their Euros on the expectation Europe will continue to have problems, the Euro will continue to weaken and thus become cheaper to purchase. I do happen to think the Euro will weaken more, but what most people are not factoring in is how the UK may be affected by the crisis, and by how much Sterling could weaken if we do see more QE.

While nobody can predict where rates will move in the coming weeks and months, I would caution that in holding out for an inch, you could very easily lose a yard. Rates to buy Euros are currently just shy of the best in over 3.5 years. Now of course they could go even higher, but it’s just as likely we could see things plummet back below 1.20 again, as forecast recently by Deutsche Bank. If you need to buy or sell Euros, simply hoping the rate will move your direction could prove very costly indeed. It’s simply gambling and speculating and could cost you dearly.

You therefore have several options:

• Fix your rate now so you know where you are and are protected against any decline in the rate. With the current uncertainty this is what I would do, but then I am risk averse and don't like gambling!
  

• Wait and see and buy your currency later; this could result in a win or lose situation and is no more than a gamble.

• Hedge your bets; convert half your funds now, and take a gamble on the other half. This strategy gives you some level of protection regardless where the market moves

• Use Currency Options – Stop Loss and Limit Orders allow you to instruct us to buy your currency if the rate drops below, or rises above, a certain level. This means you can still take advantage of gains in the rate while having a worst case scenario.

Each person’s requirements and attitude to risk are of course very different, so the best course of action is to discuss the options available, the market forecasts and to see how good our rates are.

So, get in touch now and send me a free enquiry. We can have a brief chat regarding your options and I can explain the mechanics of how our service works. I look forward to hearing from you.

Send me a free enquiry now to make the most of your currency.

* Please note we can only assist with bank to bank transfers for transfers of £5000+
I’m afraid we don’t deal in cash, or holiday funds at all.

Weekly GBP/EUR forecast, and the weeks data

Monday 28th May 2012
Good morning. The volatility in the currency markets continues, with wild swings in the exchange rate on a daily basis. On Friday alone the GBP/EUR rate fluctuated from 1.2430 to 1.2530 within 4 hours. Today as usual for a Monday I will look back over what has affected the exchange rate in the last week, and where rates may go in the coming weeks and months.

In this week’s Report:

• Greek worries continue to weaken Euro
• BoE & IMF warn on UK Growth
• USD strengthens due to its safe haven status
• Round up of the week’s other data that may affect rates

(For currencies other than GBP, EUR and USD, contact us for a consultation)

Sterling vs. Euro;

Last week we saw the pound falling off the top of a three and a half year high against the euro. During the middle of the week the pound slumped against a basket of currencies, with the Bank of England (BoE) and International Monetary Fund (IMF) concerned over growth within the UK. However towards the end of the week the pound had made a slight recovery, as you can see in the graph below.













There is still a lot of uncertainty surrounding the position of Greece within the Eurozone. The uncertainty is causing the euro to weaken significantly against worldwide currencies as we have seen with the EUR/USD cross drop below 1.26 and the EUR/JPY drop below 100.00 throughout the week. However the effect on GBP hasn’t been as large, due to concerns over UK growth keeping Sterling in check.

Greece recently announced that they were to hold a re-election on the 17th on June which will further prolong the uncertainty surrounding Greece remaining within the Eurozone. Many political and financial experts are predicting that Greece will leave the Euro, some even predicting that this will happen before the start of 2013. Despite this the European Monetary Union (EMU) will do whatever they can to keep Greece in the Euro as a default on Greek debts would be a disaster for the Eurozone and may even prompt Spain, Portugal and Ireland to attempt to do the same.

The main reason that Sterling has not seen the same strengthening against the Euro as most other currencies is due to two main factors. During the middle of last week the bank of England announced that UK growth will be strongly affected by the Eurozone debt crisis, this then lead to the BOE and the IMF suggesting that more quantitative easing (QE) may be required to protect the UK economy from the crisis in the Eurozone. The UK retail sales data was also released. Sales figures fell by 2.3% in April though some analysts feel the figures were distorted by April’s record rainfall and the sale of fuel dropping by 13.2% on the back of drivers panic buying in March over the threat of strike.

With speculation about more QE, the pound weakened against the Euro after revised GDP figures from the UK were released and showed a further 0.1% decrease to -0.3% due to the construction industry being weaker than first expected. However towards the end of the week, concerns surrounding the Eurozone came back into focus following the predictions of Greece abandoning austerity measures and leaving the euro before 2013, and the fall in German bonds and manufacturing figures. This led to a slight recovery for the pound pushing the rate back up over the €1.25 mark having dropped down to mid €1.23’s earlier in the week.

As was mentioned in posts last week, there are very contrasting forecasts regarding market movements with Deutsche Bank forecasting €1.16 in the next few months and Barclays capital forecasting that rates will reach €1.32 within the next year. As we have seen with the markets this week, there has been a very large fluctuation sometimes over the course of just a few hours.

Of course changes in the exchange rates can have a big impact on the cost of your currency purchase, so to discuss the options available to protect you, get in touch today.

Weekly Economic Data that may affect exchange rates

Monday – US Markets are closed for Memorial Day today and so markets are very quiet. There are no data releases of note.

Tuesday – In the UK today we will see Nationwide House Prices and an Industrial Trends Survey. In the Eurozone markets will look to the latest German inflation figures and Retail Sales. In the USA there are measures of consumer confidence and Home Prices.

Wednesday – Starting in the EU today we have Money Supply, Economic Confidence, Consumer Confidence & Industrial Confidence. In the UK we will see Consumer Credit, Money Supply, Mortgage Approvals and a measure of consumer confidence. We end with Home Sales data from the USA.

Thursday – Germany releases its latest unemployment data. Staying in the EU we also have some inflation data. Over in the USA we see the latest GDP figures, Unemployment and Jobless Claims. There are no UK data releases of note.

Friday – German and EU inflation data is released this morning, closely followed by EU unemployment. In the UK we also have some inflation data. We end the week in the USA with average earnings, inflation data, Non-Farm payrolls and employment data.


Getting the best exchange rates

You want the best exchange rates, of course you do. That's why you're reading this blog to try and gauge your timing. Take the next step and send us a free enquiry and have a consultation on all the options available to you.

It's free, it doesn't obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks. Click below to send your free enquiry now, and get a response the same day.

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Pound/Euro forecast: recovers on Greek worries

24th May 2012
Good morning. It’s been yet another volatile week for Sterling/Euro exchange rates. Early in the week the Pound weakened off, falling into the €1.23’s. This was due to concerns by both the Bank of England and IMF on growth, increasing the chance of further Quantitative Easing. The fall in rates was halted yesterday however, when the Euro weakened again significantly over Greek Euro exit fears, pushing rates back close to €1.25.

In today’s post I’ll look at these events in detail and analyse what may cause Pound Euro rates will go up or down in the coming months.

Pound/Euro rates gain on Greek concerns

GBP/EUR rates surged yesterday after a report saying that the Greek government may be making preparations for leaving the euro. Also weakening the single currency was Germany’s central bank saying that the developments in Greece were "highly alarming".

"Greece is threatening not to implement the agreed reforms and consolidation measures," the Bundesbank said in its latest monthly report. It said that scenario could create substantial challenges for the Eurozone.

Many analysts think that Greece may abandon the austerity measures and be forced out of the euro. Ms Lagarde from the IMF said that they did not like that prospect, but that it was "prepared for all possible situations". But she said that the costs of Greece leaving could be so high that other members of the Eurozone might be prepared to pay more to keep Greece in the euro.

The continued worries have pushed rates back up as the chart demonstrates.

Bank of England: More QE on the cards?

Yesterday we saw the latest Bank of England (BoE) minutes on their recent decision to hold off further Quantitative Easing. Policymakers voted by 8-1 this month against pumping more money into the economy, but the decision was "finely balanced" for some members.

One interesting thing the minutes showed was that the crisis in the Eurozone could hit the UK's economy, which would make the case for extra stimulus more compelling. This is what will likely stop GBP/EUR rates continuing to surge towards €1.30, as any further QE will likely weaken the Pound significantly.

IMF also pushing for more QE

On Tuesday, the International Monetary Fund (IMF) said the UK's continuing economic weakness meant authorities should consider more QE and even cutting interest rates. The IMF said the BoE should “reassess the efficacy” of cutting rates below 0.5 per cent and called for “further monetary easing”, adding that while monetary stimulus has helped, the economy remained flat.

This again shows that while the EU problems are weakening the Euro, they may also start weakening the Pound which may actually cause rates to fall back away.

The case for Pound Euro rates going up

Looking at the Euro on its own, there is a logical case for rates rising further. The Euro will likely continue to weaken; it’s highly unlikely the Greek problems will be solved any time soon. This continued weakness will likely mean a cheaper single currency which means exchange rates would rise. However we’re not just looking at the Euro on its own, we have to factor in the value of Sterling…..

The case for Pound Euro rates going down

While the EU problems continue, the Bank of England and IMF have warned that it will soon start to affect the UK. 50% of our exports go to the EU, so a strong pound is not attractive to the BoE. For this reason, further EU problems will affect the UK economy, and with more QE now looking very likely, the Pound will weaken off and exchange rates could fall.

How to get the best exchange rates in a volatile market

As outlined above, future rate movements are highly uncertain and there are logical arguments to show both gains and falls in the rate in the coming months. Of course it can’t do both things, so for clients looking to buy or sell Euros, some could lose out significantly if rates move drastically one way.

The best option is to send us an enquiry and have a free consultation on the current market conditions, and to find out what options you have to protect against the market moving the wrong way. When converting a large sum, exchange rate movements can have a huge impact on the cost.

In knowing what options are available to you, and armed with sound market knowledge, you can make an informed decision on what action to take to help you make the most of the market. Don’t just follow the rates hoping it will move in your direction. Contact us now and take control of your currency requirement, rather than letting it control you.

Our exchange rates are much better than you can achieve at the bank, so get in touch now for free and see how much you can save.

Click here to send me a free enquiry

Weekly GBP/EUR forecast, and the weeks data

Monday 21st May 2012
Good morning. As regular readers will know, on Mondays I like to take a retrospective look at the previous week in the currency markets, analyse what has been moving exchange rates, and look at what the Pound Sterling forecast to Euros may be going forwards.

In this week’s Report:

• Pound/Euro hits new 3.5 year high before dropping
• Bank of England warns on UK economy and EU threat
• Greek exit spooks markets
• Round up of the week’s other data that may affect rates

(For currencies other than GBP, EUR and USD, contact us for a consultation)

Sterling vs. Euro;

Last week was an exciting one for the GBP/EUR cross seeing a fresh three and a half year high which was quickly followed by a slump as sterling weakened against the single currency. There are a number of reasons for last week’s erratic market movements; below the graph is a summary of the key factors that have driven rates recently.













EU Debt/Greece worries

The troubles in Greece are well documented, the sheer uncertainty hanging over Greece and the lack of a proper government is greatly increasing the room for costly financial accidents. One in five Euros that Greek banks now lend to households or companies is propped up by the ECB. If Greece left the euro, all of that would stop and the Greek banking system would simply be unable to function.

It would be no surprise if the ECB were trying every trick in the book to get Greece to toe the line. Why? Because if things continue on their current trajectory and Greece leaves, the ECB is the only institution with even a fighting chance of seeing off a panic in countries like Portugal Spain and Ireland, and "saving" the euro. Mario Draghi does not want to be the Euro's "saviour" because that ought to be a job for governments. But nor does he want to be the one to pull the plug.

This uncertainty has weakened the Euro significantly and has helped push the GBP/EUR rate to the best in over three and a half years.

Bank of England Meeting

Towards the middle of the week Mervyn King spoke following the bank of England meeting. He was quick to stress that the Eurozone posed the greatest threat to the UK recovery, and there was a "risk of a storm heading our way from the continent”. The Eurozone was "tearing itself apart" and the UK would not be "unscathed", said Bank governor Sir Mervyn King.

Alongside King’s comments, in a fiery prime ministers questions last week Prime Minister David Cameron also spoke of the financial storm clouds across Europe, warning that Eurozone leaders must act swiftly to solve its debt crisis or face the consequences of a potential break up. It looks like a storm is coming!

This halted the rise in GBP/EUR rates and the Pound fell by around 1% against the Euro, as markets worried about the effect of the EU crisis on the UK, and the ever present threat of further QE. Indeed also on Friday, a Bank of England MPC member voiced his concerns, stating further QE could be on the cards. You can read all his comments here on the Telegraph website. QE weakens a currency due to increased supply.


Spanish Bank downgrade

Late last week Moody's Investor Service carried out a sweeping downgrade of 16 Spanish banks, including Banco Santander, the Eurozone's largest bank, citing a weak economy and the government's reduced ability to support troubled lenders. All the banks' long-term debt ratings were downgraded by at least one notch, and some suffered three-notch cuts.

Spain's banks, awash in bad loans after a real estate boom went bust, are at the heart of the Eurozone debt crisis because markets fear a state bailout would put a severe strain on the country's already stretched public finances. It looks like the contagion that has been mooted by many analysts has started touching the weaker countries in the Eurozone. This didn’t really affect GBP/EUR rates too much, due to the exposure the UK has to the banking sector.


Pound Sterling to Euro Forecasts

There are various forecasts at the moment that are quite different. With Deutsche Bank forecasting €1.16 in the coming months and Barclay's capital firm in the belief that rates will hit €1.32 within the year, it is essential to get in touch to find out your options, which can help you make the most of your currency. We will help you arm yourself with the knowledge which could assist you in getting the timing right and look at helping you take control of the market.

Don’t simply wait for last minute and risk seeing the rates to move against you, click here to make an enquiry for free, and take the first step to letting us help you make the most of your currency now.

Weekly Economic Data that may affect exchange rates

Monday – There are no UK releases today, and the only data of note is some construction output figures, and a speech from the US Federal Reserve.

Tuesday – The first UK data of the week is released at 09:30am including Mortgage Approvals, Consumer Price index, Housing Prices, Retail Sales and Public Sector borrowing. This will give a good barometer of the UK economy and so could affect Sterling. In the EU the only release is consumer confidence. The US has some Homes Sales and Manufacturing data in the afternoon.

Wednesday – This morning the BoE will release its minutes, showing policy discussion on its recent decision to hold interest rates and QE. The most recent news from the BoE weakened the Pound so these will be closely watched. Stateside today we will see Home Sales measures. Trade Balance figures from New Zealand are released at 11:45pm.

Thursday – Today we’ll see lots from Germany: Retail Sales, GDP figures, Inflation data and business climate assessment. As Germany is the largest EU economy expect Euro volatility. EU wide inflation measures are also released. Later in the morning we see a host of UK data including Retail Sales, GDP figures and business investment. Expect a choppy day for GBP/EUR. In the US we have Jobless Claims and Durable Goods orders.

Friday – A quiet end to the week, with only German consumer Confidence figures and a consumer sentiment survey from the United States.

Getting the best exchange rates

You want the best exchange rates, of course you do. That's why you're reading this blog to try and gauge your timing. Take the next step and send us a free enquiry and have a consultation on all the options available to you.It's free, it doesn't obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks.

Click below to send your free enquiry now, and get a response the same day.

Click here to send me a free enquiry

Pound/Euro drops after dire BoE report - forecast

Thursday 17th May 2012
Good morning. The volatility continues in the currency markets, with the EU debt crisis and Greece’s problems continuing to drive exchange rates. Earlier in the week we hit new highs of €1.2580 against the Euro, however as is often the case, the gains were short lived. Sterling has now started to weaken following grim growth forecasts by the Bank of England. So in today’s posts we’ll look in detail at:

• The EU debt crisis situation; what will happen next?
  
• What would happen if Greece leaves the Euro?
• Forecasts for Pound/Euro going up in 2012
  
• Forecasts for Pound/Euro going down in 2012

I’ll then analyse the UK’s economic prospects and look at the arguments for where Sterling/Euro rates could move throughout the remainder of 2012. Let's start with the obvious - the situation in Greece....

Greek worries weaken the Euro pushing GBP/EUR rates higher.

The failure of Greece to form a government has plunged its membership of the Euro into doubt this week, and is the reason the Euro has weakened so much. Indeed earlier in the week we saw rates get very close to €1.26.

It now looks like Greece will hold fresh elections in June after final talks to form a coalition failed on Tuesday, and this raised new concerns over Greece's continued membership of the Euro. The uncertainty pushed the GBP/EUR rates up at the start of the week, peaking at a new 3.5 year high of €1.2577.

EU officials fear Greece will elect an anti-bailout government, which could trigger a Greek exit from the euro. That possibility is now discussed openly among Europe's leaders

So what would happen if Greece leaves the Euro?

For a few years now, everyone has been asking what would happen if Greece left the euro and reverted to the Drachma. It’s not something that would happen overnight, however it is looking increasingly likely. The more uncertainty we see in the euro zone, the more the euro could weaken.

While the question of Greece leaving is real one, the fact remains that there is no mechanism to do so. The possibility was never envisaged when it was created in 1999; to exit the euro it would have to leave the EU. There would probably be an interim period after which any Euros would be converted to Drachma at a pre-agreed rate, much like when countries switch to the Euro. Supply and demand would then dictate the new currencies value. The likely result is the new currency would fall through the floor and inflation would spiral.

So the best case scenario of Greece leaving would leave Greece with no buying power and high inflation. However, with its currency so weak the idea is that the economy would then grow.

Of course at the moment all of this is speculation, and given there is no mechanism for them to leave, even if they decided to do so tomorrow it would take many months before any potential return to another currency would be implemented. So let’s first look at the UK economy and where Sterling could move, and then at the more immediate effects we may see on exchange rates.

Sterling weakens on Bank of England forecasts

Yesterday Mervyn King, governor of the Bank of England said it has cut its growth forecast for this year to 0.8% from 1.2%, saying the Eurozone "storm" is still the main threat to UK recovery. The news shifted focus back towards the UK, and the Pound dropped across the board, bringing rates back down from their recent highs. Indeed I have warned in recent days that the UK is not immune to the EU’s problems, and the markets are now pricing this into the Pounds value.

The Eurozone was "tearing itself apart" and the UK would not be "unscathed", said Bank governor Sir Mervyn King. He told a news conference that the euro area posed the greatest threat to the UK recovery, and there was a "risk of a storm heading our way from the continent".

"We have been through a big global financial crisis, the biggest downturn in world output since the 1930s, the biggest banking crisis in this country's history, the biggest fiscal deficit in our peacetime history, and our biggest trading partner, the euro area, is tearing itself apart without any obvious solution.

On quantitative easing, he said that no decisions had been made whether or not to continue pumping money into the economy. The last stimulus programme was still "working its way through the system.

So will Pound/Euro rates go up or down this year? 2012 forecast

This is what everybody wants to know, but what nobody can predict! Indeed forecasts are differing between some big players. Deutsche Bank have revised their forecasts to rates dropping to €1.16 by the end of the year, citing the fact that the UK economy will be affected byt he EU problems, and further QE is likely which will weaken the Pound. Deutsche Bank trade more currency than anyone else in the world so you should certainly take notice if you need to buy Euros.

In stark contrast however, Barclay’s Capital are forecasting €1.30 by year end due to the EU’s debt crisis. This really shows how uncertain things are going to be this year, but also highlights the huge difference that these levels would make to you if you need to make a large transfer.

Taking the Euro on its own, I would say that it will likely weaken more which should make it cheaper to buy, but what is hard to factor is the effect it will have on Sterling. Half our exports go to the EU so that could push the Pound down, and it wouldn’t surprise me to see Mervyn talk the Pound down some more to help the export led recovery, as he’s not keen on a strong Pound.

So there are logical arguments that point to both rates continuing to rise, and also for rates to drop back below the €1.20 level, and this really illustrates the uncertainty over which way rates will go.

If you need to get the best exchange rates, know your options.

If you have a requirement to convert currency and want the best Pound/Euro exchange rates, what is imperative is you know the options available to you, and have protection against rates moving the wrong way. Simply leaving it to chance could prove very expensive indeed should the market move against you.

If you need to buy or sell Euros in the next 12 months, send me a free enquiry now. I can provide a free consultation on the various forecasts, and the different options you have to help you achieve the best exchange rate. You can then make an informed decision on what action to take.

Click below to make a free enquiry today to find out what you can do to ensure you don’t get caught out by what is a very volatile currency market.

Click here to send me a free enquiry

Weekly GBP/EUR forecast, and the weeks data

14th May 2012
Good morning. Well, last week was one of the busiest I have seen on the trading floor for some time. With Euro weakness pushing rates to €1.25, many of my clients were keen to fix rates for both buying and selling Euros with a forward contract, due to the uncertainty over the future movements of the GBP/EUR rate.

In today's report as always for a Monday morning, I'll review last weeks movements, and take a look at what might happen to the rate this week. If you are looking for the best exchange rates for a transfer of £5k+, get in touch today to find out more about our service.

In this week’s Report:

• Pound/Euro rates hit 3.5 year high
• EU political uncertainty still driving exchange rates
• Round up of the week’s other data that may affect rates

Sterling vs. Euro;

Last week again saw the Euro weakening significantly after further uncertainty within the Euro zone, along with some positive data being released from the UK surrounding decisions made by the Bank of England, which combined have led to the mid-market levels for GBP/EUR reaching a high of €1.2501 before dropping slightly on Friday. This is the highest we have seen over the last three and a half years! With some more important data coming out of the euro zone this week it will be hard to predict which way the market will shift.













Euro weakness causes GBP/EUR rate to rise

The main reason for such uncertainty within the Eurozone has come as of a result of the recent elections in France and Greece. Greece are yet to form a coalition government and there is a lot of uncertainty as the leader of Greece's left-wing Syriza bloc has stated to the two major parties that if they want to form a coalition they have to end their support for the austerity terms. This has increased speculation that Greece may leave the Eurozone which is a big worry for Germany as Spain, Portugal and Ireland may look to follow suit.

Indeed there was an interesting article on the BBC website outlining how Greece may leave the Euro.

Francois Hollande (the new socialist French leader) is also looking to reduce austerity and to focus on increasing growth which has led to a lot of uncertainty regarding the economic recovery within France and the Eurozone.

EU economy forecast to return to recession

The eurozone economy is forecast to shrink this year as its debt crisis continues to bite. The European Commission's spring forecast confirmed its prediction of a 0.3% contraction in 2012 in the economies of the 17 countries that use the euro. Growth figures for the first quarter of 2012 will be released by the European statistics agency Eurostat tomorrow, Tuesday 15 May.

"Economic activity in the EU contracted in the last quarter of 2011 and is estimated to have also done so in the first quarter of 2012," the Commission said in its statement.

This is probably priced into exchange rates already for the most part, but could of course cause some further weakness in the Euro.

Pound supported by Bank of England decisions

Back in the UK, the Bank of England released data for interest rates and quantitative easing (QE). The decision was made to hold interest rates at 0.5% which has now been kept at this level for over four years. There was also the decision for there to be no further QE this month.

This has come as a surprise to many experts as the UK recently dropped into a double-dip recession and it was expected that there may be a further injection of QE into the economy. As a result of these announcements the pound strengthened slightly pushing the GBP/EUR rate into the high 1.24’s.

What data this week may affect exchange rates?

This week we have some important data that may affect the GBP/EUR rate quite significantly. On Tuesday Germany will release their GDP figures followed then by GDP figures released from the European Monetary Union (EMU) which may have a big effect on the exchange rate.

Then on Wednesday we have data from the UK in regards to average earnings and unemployment figures followed up by core consumer price index data released by the EMU which may lead to some large fluctuation in the exchange rate.

We round off the week with German producer price index release which again could lead to a large swing in the GBP/EUR rate. Full details of the week’s data releases can be seen in the Market Data section below.

Do you need to buy or sell Euros?

Taking into account the volatility of the Eurozone at the moment and the data that will be released over the next week, it is important that if you are looking to sell Euros this week and you are wary about the data releases, you make an enquiry to discuss your options.

Even if you don’t need to convert your funds for some time, you can hold the current rate through a forward contract for as much as up to two years, thus protecting against further adverse exchange rate movements.

Likewise if you are looking to purchase euros you should get in contact to discuss the current market movements. Of course many will hope rates will continue to rise, but of course this is not a given. The currency markets can move very quickly indeed, and having a well thought through strategy to help time your purchase can save you thousands of pounds.

As I have often said on this blog, the other options is simply hoping the market will move in your direction, and hope is not a reliable economic tool.

Weekly Economic Data that may affect exchange rates

Monday – It’s a quiet start to the week in terms of fundamental data, with the only release of note Industrial Production data from the EU.

Tuesday – In contrast to Monday, today sees lots of important data. Potentially affecting GBP/EUR rates is the Germany GDP release, Europe’s largest economy. This is followed by EU GDP figures later in the morning, and economic sentiment surveys for the EU. In the UK we have Trade Balance figures which may also have an impact on exchange rates. Stateside we see Inflation data, Retail Sale & Housing Index data.

Wednesday – We’ll start in the UK today with a host of unemployment data including the Claimant count, average earnings and the ILO unemployment rate. We will also see an inflation report from the BoE, so lots that could affect the Pounds value. In the EU we have inflation data and trade balance figures. Across the pond we have Housing data, industrial production, the FOMC minutes and a FED speech.

Thursday – The Ascension Day bank holiday sees many EU markets closed today, so data today is weighted towards the states, with Jobless Claims, the Philly Fed survey and a FED speech the main data to watch for as it may affect Sterling/Dollar rates.

Friday – The G8 Meeting starts today which could throw up some economic surprises. Scheduled data releases include German and Canadian Inflation data. There are no UK releases today.

Getting the best exchange rates

You want the best exchange rates, of course you do. That's why you're reading this blog to try and gauge your timing. Take the next step and send us a free enquiry and have a consultation on all the options available to you.It's free, it doesn't obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks. Click below to send your free enquiry now, and get a response the same day.

Click here to send me a free enquiry

Pound/Euro hits 3 year high above €1.24 - why?

Tuesday 9th May 2012
Good morning. Pound/Euro rates are at a 3 year high after the weekends French, Italian and Greek elections caused significant political uncertainty, weakening the Euro and pushing rates to €1.24+; the best buying levels in 3 years, amid widespread discontent with the austerity drive.

In today's post I will have a detailed look at the effect of the elections on the Pound/Euro exchange rate, and the forecast for where Sterling/Euro rates may go in the coming months.

Elections in Europe weaken Euro significantly

Over the weekend we saw elections in France, Italy and Greece. The results plunged the Eurozone into a fresh crisis, as the new and potential governments have cast doubt on the durability of austerity plans aimed at tackling the euro zone debt crisis. When UK markets opened this morning, the GBP/EUR rate surged to a 3 year high. Let's have a detailed look at each country in turn, and why the rate has gone up.

French Elections/effect on exchange rates

Mr Hollande won Sunday's election in part due to his hostility towards the excessive focus on austerity pursued by his predecessor and Mrs Merkel. For Europe this is a momentous event. For a long time the centre right has held the stage; now a socialist has won and European politics will feel the shudder.

The truth is that if France is to bring its budget deficit down to 3% by 2013 then 18bn euros of cuts will have to be found next year. How that will be done did not receive much attention during the campaign. Hollande has promised to make growth rather than austerity his priority. In saying this he challenges the German prescription for solving the eurozone crisis.

He simply does not believe that austerity first is working. His first official meeting after he is sworn in will be with German Chancellor Angela Merkel - she has already written to the newly elected French President saying "necessary decisions" must be taken to resolve the debt crisis.

Mrs Merkel said she was sure the co-operation between the two countries would "continue to strengthen". She has resisted calls from Francois Hollande to renegotiate a European pact requiring government budget cuts. A meeting of EU leaders has also been scheduled to discuss the pro-growth reforms preferred by Mr Hollande.

Greek Elections/effect on exchange rates

The leader of Greece's left-wing Syriza bloc has said he will try to form a coalition based on tearing up the terms of the EU/IMF bailout deal. Alexis Tsipras, whose bloc came second in Sunday's vote, said Greek voters had "clearly nullified the loan agreement". He has three days to reach a coalition deal and has told the two major parties to end their support for the austerity terms if they want to take part.

Again like in France, this severely dents the progress made over the last year in Europe, with markets now very wary over future EU bailouts.

Italian Elections/effect on exchange rates

Centre-left and protest parties have made gains in Italy's local elections, amid widespread discontent with the government's austerity drive. The centre-right People of Freedom (PDL) party of former Prime Minister Silvio Berlusconi did particularly badly, with most votes counted.



Why have the elections pushed the GBP/EUR exchange rate up?

It's because of the fact is has cast doubt on the durability of austerity plans, aimed at tackling the euro zone debt crisis. The EU has been plunged back into crisis with Italy, France and Greece assuming with new leaders they can ignore the necessary cuts and start spending again. Spain and Portugal will then assume if those countries don't pursue austerity, why should they?

Things could get a little worse if politicians in Greece fail to form a new government, and this has left questions over the country's ability to avert bankruptcy and stick with the common currency. Also, the eurozone is widely expected to return to recession this year, with some blaming spending cuts and tax rises by national governments, particularly those of southern Europe who are struggling to get their borrowing back under control. Unemployment in the eurozone rose to 10.9% in March. In Spain it rose above 24%, while the youth unemployment rate is greater than 50%.

Pound/Euro exchange rate now at 3 year high

All of the above has pushed Sterling to Euro rates to their best in 3 years, which is great news for anybody that needs to buy Euros at the current rate. If you want to take advantage of the current rate, get in touch today.

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Will the Pound continue to gain? GBP/EUR forecast May June 2012

It's quite remarkable the Pound is so strong, despite the UK being back in recession! In the coming weeks, GDP figures will be revised though, so it's likely markets are waiting for this. For the time being however, the Pound is seen as a safe haven alternative to the Euro.

Indeed the Pound may also come under pressure if debt contagion and economic slowdown in the euro zone started to affect the UK economy and fuel speculation the Bank of England could extend its asset purchase programme to boost growth. It's important to remember that the UK and EU are trading partners, so any continued issues in the Eurozone could have a knock on effect on the Pound.

Most analysts still seem to be forecasting continued gains for the Pound, and given the information currently available I would agree. Of course, it's impossible to predict exchange rates and with economic surprises coming from all quarters at the moment, while it is likely Pound/Euro rates may climb further, it's not a given.

A 'Stop Loss' order is useful in this kind of market. This is where you can instruct us to convert your currency if it falls below a pre-agreed level, for example 1.21. You can then continue to take advantage of any further gains should rates climb, but if things move against you there is a safety net - a very useful tool when the market is moving in a favourable direction. These type of orders are available for transactions £10k and above - find out more now.

Pound falls against US Dollar

To demonstrate this, we saw GBP/USD rates fall over the weekend. This is partly due to the uncertainty in Europe causing flow back to the safe haven US Dollar, but it also shows that Sterling is not exactly a powerhouse - it's simply stronger than the beleaguered single currency.

Getting the best exchange rates

You want the best exchange rates, of course you do. That's why you're reading this blog to try and gauge your timing. Take the next step and send us a free enquiry and have a consultation on all the options available to you.It's free, it doesn't obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks.

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Weekly Sterling/Euro forecast & predictions

Tuesday 8th May 2012
Good morning. Markets in the UK re-open today after the Bank Holiday break. As is usual for the first trading day of the week, this morning I will take a look back at market movements over the last 7 days, the effect on exchange rates, and the forecast for where rates may go throughout 2012.

In this week’s Report:

• EU instability keeps GBP/EUR at 22 month high
• Sterling remains supported due to safe haven flows
• Round up of the week’s other data that may affect rates

(For currencies other than GBP & EUR contact us for a consultation)

Sterling vs. Euro;

Last week saw continued volatility within the Eurozone, which has continued to weaken the Euro. Earlier in the week saw the Pound fall with poor economic data releases as I outlined in my last post; however it was soon to recover to see the GBP/EUR cross trading at a 22 month high. One of the hardest questions to answer is what is expected of the Euro for the coming months?













Eurozone weakness

Let's start with what has happened in the Eurozone. A week ago we saw Euro zone unemployment rates rise to 10.9%, the highest since the Euro was formed in 1999 with 17.4 million now looking for work and more than 3 million of those under 25.

Spain and Italy are in recession and have seen borrowing costs rise. This has increased the chances that they may need help or even bailouts resulting in Euro weakness pushing the GBP/EUR exchange rate higher.

Staying in the EU, Interest rates remained unchanged at 1% as ECB President Mario Draghi stated “We have to put growth back at the centre of the agenda”. Economic growth across the Euro zone is desperately needed to stimulate struggling economies and prevent further contraction and the need for more bailouts.

Also the political uncertainty has worried investors, and this has also gone some way to weakening the Euro. All of the above are the main reasons the GBP/EUR rate remains so good.

Pound remains supported by good economic data

In the UK, the Pound remains quite strong, despite the fact we are in recession. Recent figures have been quite positive, and the fact is that the Pound is now becoming a safe haven currency, helping exchange rates remain high.

With many countries facing credit rating downgrades, AAA rated UK government bonds are seen as a safe bet, and with volatility across the globe this has increased the demand for Sterling, helping keep the Pound relatively strong.

Also helping the Pound are the austerity measures. Regardless of your political persuasion and views over whether cuts are a good thing or a bad thing, as far as the currency markets are concerned they are welcomed and viewed as a necessity, and good for reducing the deficit. Because they have now been in place for some time while other countries still argue over levels of cuts required, the UK should be resilient and well placed to recover faster than other economies, helping the Pound outperform the Euro.

Summary

The combination of a weak Euro and Strong pound, as outlined above, are the reasons exchange rates to buy Euros are the best in nearly 2 years. UK and EU political decisions and economic data will influence how the GBP/EUR reacts in the coming weeks and months; strong data from the UK seems to be supporting the highs we have seen recently. Continued uncertainty across the EU can cause the Euro to weaken even further which is great if you are buying Euro’s but not so good if you are selling.

For those needing to sell Euros - A forward contract is an excellent tool to take advantage of if you feel that the Euro will continue to weaken. It means you can secure your currency and lock into today’s rate for up to two years in advance, protecting your funds against any adverse movements in the rate.

If you are looking to buy Euro’s - it is best to contact us to have a consultation on the options available to you. Rates are of course at a very good level at the moment, with some forecasting it will go higher, and others convinced a fall is just around the corner.

Some analysts are forecasting between €1.15 and €1.32 for the next 12 months, and this really demonstrates the uncertainty that is currently driving exchange rate movements. If you need Euros in the next 12 months, then there are various ways we can help you take control of your requirement to try and help you avoid any potential loss if rates move against you. It is free to make an enquiry, no obligation involved, and you can then make an informed decision on the best way forward for you.

Click here to make an enquiry about getting the best exchange rates

Weekly Economic Data that may affect exchange rates

Monday – UK Markets were closed for Bank Holiday, but we saw Australian Retail sales releases, along with German Factory Orders and EU Investor Confidence measures. Very late in the evening UK House Prices were released, but there was little effect due to the closed UK markets today.

Tuesday – Despite the UK opening again today there is no major UK data today. From the Eurozone all data is from Germany: Wholesale Prices & Industrial Production. Further afield we have Trade Balance figures from Australia. In the United States there are Economic Optimism measures, along with speeches by some FED members which could affect GBP/USD rates.

Wednesday – Yet again a very quiet day for the UK. Germany leads the Eurozone data again with Trade Balance figures. Other data today is from the USA – Mortgage Applications, Wholesale Inventories and another speech by the FED.

Thursday – Finally some UK data, and we have a lot of it today! Goods Trade Balance, Industrial Production, Manufacturing Production, a BoE interest rate decision, a BoE QE decision, and a GDP estimate. It’s likely to be a very interesting day for Sterling with so much economic data being published. Other data is from the US including a monthly budget statement and the most recent Trade balance figures.

Friday – We end the week with a whole host of inflation data from around the world including UK, German and US Producer Price Index measures. There are also some unemployment measures from Canada, and a consumer sentiment survey from the USA.

Getting the best exchange rates

You want the best exchange rates, of course you do. That's why you're reading this blog to try and gauge your timing. Take the next step and send us a free enquiry and have a consultation on all the options available to you.It's free, it doesn't obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks. Click below to send your free enquiry now, and get a response the same day.

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2012 forecast: Pound/Euro recovers to 22 month high

Thursday 3rd May 2012
Good morning. A fairly volatile week so far! The Pound fell earlier in the week when economic data was quite poor, signalling all is not rosy with the UK economy. However during trading yesterday, Sterling recovered well to hit a 22 month high against the Euro, and a 32 month high against a basket of major currencies.

In today’s post I’ll have a look at the latest data in detail, how it has affected exchange rates, and how the coming days data could have an effect on the cost of your currency conversion.


Pound falls earlier in the week

As stated above, the Pound fell back from the record highs we had seen recently, after some quite poor data was released. We had a manufacturing survey that highlighted the fragility of the UK economy, and also the risk that the strong Pound may dent exports also had an effect on the Pounds value.

The pound's losses were quite short lived and limited though, as the currency is still seen as the best of a bad bunch. The Euro is having its own well publicised problems, the US has high unemployment and the chance of further monetary stimulus, and of course the recent numbers showing the UK is in recession may be revised up after last week's unexpected contraction – all of this has helped the Pound recover.


EU data disappoints, pushing GBP/EUR back up

This week we have seen unemployment in the Eurozone reach a record high. For all 17 nations in the Eurozone the jobless rate rose again to 10.9%, the highest since the euro was formed in 1999.

In some rare good news from the EU, Greece has had its government debt rating raised out of default by credit rating agency Standard & Poor's. The country goes to the polls for national elections on Sunday, and has been racked by continual street protests over its austerity cuts.

We also have the Dutch and French political uncertainty, which could mean we see new governments not as sympathetic to the austerity measures needed for EU bailout funds. This has caused concern among investors which has weakened the Euro pushing rates back up to a 22 month high.

Better UK data helps push up the Pound

We’ve had a run of decent data for the UK in the last few days. UK construction data exceeded expectations while the euro zone manufacturing sector contracted further and unemployment rose, highlighting the divergence between their economies. The markets seemed very pleased with the solid figures as a slump in construction output was one reason behind the economy's contraction in the first quarter.

The construction data soothed some concerns about the fragility of the UK economy after manufacturing data disappointed on Tuesday, and raised expectations of a decent PMI reading from the dominant services sector on Thursday.

Furthermore, UK mortgage approvals and consumer credit data also came in above forecasts.
So in summary, the data has helped fuel safe-haven demand for the pound, which has rallied strongly against the Euro in recent months as investors diverted portfolio flows from the indebted euro zone to triple-A rated UK government bonds.

Indeed, Sterling has performed well since April's Bank of England policy minutes dampened speculation of an increase in the bank's 325 billion pound asset purchase programme. With its high levels of debt and strong trade links to a troubled euro zone, however, the UK economy remains shaky and more monetary easing remains a possibility. Analysts, however, said a sister PMI survey on the more dominant services sector, due on Thursday, could have a bigger impact on sterling if it came in on the weak side.

Summary for Pound/Euro forecast 2012

So lots to digest with regards to the UK and EU economies and this is what has been driving exchange rates this week. In short, if we keep getting strong UK data then the Pound will likely remain supported against the Euro at the current highs. If poor data comes in though we could see it dip.

I think the main thing that will affect GBP/EUR rates in the coming days however is the political situation in the EU – continued uncertainty could weaken the Euro and the potential is there for it to weaken further.


Getting the best exchange rates

You want the best exchange rates, of course you do. That's why you're reading this blog to try and gauge your timing. Take the next step and send us a free enquiry and have a consultation on all the options available to you.It's free, it doesn't obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks. Click below to send your free enquiry now, and get a response the same day.

Click here to send me a free enquiry