Exchange Rates in the wake of Cyprus fiasco

Tuesday 26th March 2013 

Good afternoon to regular readers and new readers alike. If you have stumbled across my blog looking for the best exchange rates, and information on what moves the rate to see what may happen in the coming weeks and months, you’ve come to the right place. Today I'll look at what the current situation means if you need to buy Euros, and also look at the implication of EU events on those selling Euros back to Pounds.

Since my last post things have progressed a little in Cyprus, and now an agreement has been put in place, but the topic is still dominating headlines in both the national press and financial supplements. So what have I got for you today? I’m going to have a look at why the Euro remains weak despite the agreement, and look at the possible implications of the deal on exchange rates. I will also look at Sterling, what data is coming soon and which way exchange rates may move in the coming weeks. 

If you need the best exchange rates, don’t forget I can source commercial levels significantly better than the banks, so send me a free enquiry today to find out more. 

Right, let’s get cracking and today I’m covering the following points:

• Deal in Cyprus agreed 
• Why is the Euro still weak? 
• Outlook for Sterling in coming weeks 
• Credit downgrade keeps pressure on Sterling. 

Cyprus – deal agreed, but Euro remains weak. 

Cyprus has agreed a deal with the European Union and the International Monetary Fund (IMF) to secure a 10bn euro bailout. It came just hours before a deadline set by the European Central Bank (ECB), and after a week of uncertainty about the future of Cyprus in the Eurozone. Despite the agreement, the Euro remains weak and GBP/EUR rates remain close to a 2 month high. Why is this? Well, worries about a broad euro zone slowdown, political uncertainty in Italy and prospects of the European Central Bank easing monetary policy in coming months is keeping EUR weak. Let’s dig a little deeper in to this financial mess….. 

So what was agreed? 

Cyprus has agreed to a significant restructuring of its banking sector, along with other measures such as tax rises and privatisations. The measures are designed to raise billions towards the bailout, but protect bank customers with deposits of 100,000 euros or less. For those with more than that, it’s not looking very good at all. You can read in depth what was agreed here on the BBC site.

This may also have a wide impact on the Eurozone, however. Some analysts have warned that the measure would set a dangerous precedent in the world of Eurozone bailouts. 

In previous rescues, individual accounts have been protected and governments, private investors and banks have picked up the tab. Bank customers in other European countries may begin to fear that their savings will also be targeted should their economies run into trouble in the future. 

Worried about how this could affect exchange rates? Contact me. 

So could the same thing happen elsewhere? 

It could, but for the moment this is unlikely. You have to remember that Cyprus is Europe’s 3rd smallest economy, and much of the savings there are held by Russians. In terms of the bailout amount vs. the countries GDP, their bailout was similar to Greece’s. I personally think that the ECB is loath to bailout out Russians. 

What does this mean if you need to buy Euros? 

It’s good news. The disaster in Cyprus has weakened the Euro, pushing rates up from 1.13 only a few weeks ago to around 1.18 today.

This may not last long, as there is no strength in the Pound. Indeed the rating agency Fitch has warned that it may downgrade the UK's credit rating in April, so we could see rates on the way down again once the EU problems are no longer centre stage.

If you need to buy Euros, get in ouch with me today to find out how you can lock in the current attractive levels even if you don’t need your currency for some time. 

Need to buy Euros at the best rate? Contact me now. 

I need to move Euros out of the Eurozone, what does this mean for me? 

Many of my clients have been moving funds out of the Eurozone in fear that other countries may follow suit. I personally think this is unlikely, but then I don’t have large volumes of funds in the Eurozone. If I did, I would probably be keen to keep my deposits there under the €100k threshold. 

If you want to move funds back to the UK, send me an enquiry now to see the rates I can achieve, they can be up to 4 or 5% better than the banks. 

Crazy times

I’ll post more news on Thursday to keep you all updated how the events are affecting exchange rates. At the moment, banks remain closed, there is a freeze on transfers, and nobody knows what the future holds.

What's happening is remarkable, more so that journalists and politicians are calling the plunder of savings a "haircut". I've got another word for it, and it rhymes with 'slobbery'. These really are crazy times we’re living in! 

Find out about my rates and service by clicking here. 

Effect of Budget & Cyprus on exchange rates

Wednesday 20th March 2012 

Good afternoon everybody. Much has happened since my last post, including worrying developments in Cyprus that have weakened the Euro, and also news from the Bank of England that has strengthened the Pound, so rates are the best they have been for about a month. The Budget delivered today has also affected exchange rates. So, what have I got in store for you all in today’s post? 

• Cyprus Bailout talks weaken Euro 
• Pound/Euro rises as Bank of England indicate Pound is weak enough 
• Effect of Budget on exchange rates 
• Uncertainty over further Quantitative Easing
• How to get the best exchange rates

So without further ado, let’s look at each of these points in turn, analyse their current and possible future effects on exchange rates, in addition to looking at ways I can help you get the best exchange rates possible. 

So what is going on in Cyprus? 

As I’m sure you have all read in the news, Cyprus is in trouble. The reason I haven’t posted on it until now is that it has been a developing story, and I wanted things to be a little clearer before discussing the effects on exchange rates. In a nutshell, in order for Cyprus to receive a bailout, they decided that up to 10% of peoples savings would be taken as a tax to prop up the banks. 

When markets opened on Monday, the effect was a weakening Euro and a rise in GBP/EUR rates. Why was this? Well it is because the latest EU bailout has dragged the debt crisis back in to the spot light, and the Euro has weakened as a result. Banks are currently closed until at least Thursday, over fears of a run on the banks. 

The ECB (European Central Bank) has made it clear however that without a reform programme for Cyprus there will be no bailout. The plans were voted down recently, but there's now a danger that they won't be able to open the banks again at all. The rescue deal for Cyprus, announced on Saturday, prompted widespread outrage on the island at the prospect of ordinary savers being forced to pay a levy of 6.75%. 

The Cypriot finance ministry announced a change in the plan on Tuesday, to exempt savers with less than 20,000 euros (£17,000), while those over 100,000 euros would still be charged at 9.9%. However, this was not enough to placate critics. The plan to tax bigger deposits at a higher rate has angered Russia, as Russian nationals hold many of those larger deposits. There are rumours that Cypriot Finance Minister Michalis Sarris is in talks with Russia for a possible bailout, in return for gas fields. 

So what does all this mean for exchange rates? The effect is will have is very hard to quantify. Should terms of a bailout be agreed, then it’s likely the Euro will regain some strength and pull exchange rates back down. While no agreement is in place, the uncertainty means the Euro is on the back foot.

Discuss your currency requirements with me today. 

Bank of England warns more QE may weaken Sterling 

This morning, the latest Bank of England minutes revealed that members of the Monetary Policy Committee remain divided over whether to inject more stimulus money into the UK economy. For the second month in a row, 3 of the 6 members voted for further QE, including Sir Mervyn King. 

One member of the MPC also raised concerns about the continuing weakness of the pound, which as we all know, has fallen significantly against the Dollar and Euro since the start of the year because of fears about the weakness of the UK economy. Ian McCafferty warned that a further fall in sterling could raise inflation, which might have "damaging" consequences. 

So what does all this mean? For exchange rates, it’s actually pretty unclear. There seems no consensus on whether more QE will come or not, so for the moment it hasn’t affected rates too much. Should further economic data support the case for more QE, then expect the Pound to fall. Should better numbers be released in the next 4 weeks, then the Pound will likely gather strength. 

Worried about which way the rate may go? Send me a free enquiry.

What effect has the Budget had on exchange rates? 

As is often the case, the budget didn’t have much of an effect on exchange rates. Initially the Pound dropped a little, before quickly recovering the losses. I won’t go in to too much detail on the budget here, other than to look at what affects exchange rate now and in the coming months. You can read a comprehensive breakdown of what was announced here on the BBC website. So what were the main points that may affect exchange rates? 

The official forecast for growth in the UK economy this year has been halved. Revised forecast is for the UK's national debt to rise to 85% of GDP Announced that the Bank of England Monetary Policy Committee had also been given an updated broader remit, but keeps its 2% inflation target. The markets have generally taken budget positively; indeed Sterling has risen against the Euro and the US Dollar. 

The main reasons for this are the fact that the deficit is being reduced, and despite the revised growth forecasts, it now looks like we may avoid a further contraction that would put us back in recession. Also of interest were changes to the Remit of the bank of England to focus on growth; however we don’t yet have the details of this. 

So in summary, not many surprises in the budget, but there is still the chance of further QE that could drag the Pound lower. While the EU debt crisis is still in the headlines however, expect Pound/Euro rates to be supported. If and when a bailout is agreed, then expect a reversal and decline in the rate. 

Contact me to discuss how exchange rates may change.

How to achieve the best exchange rates possible. 

These are very volatile times we are living in. This year alone the Pound/Euro rate has been as high as 1.2350 and as low as 1.13. With so much happening all over the world that is impossible to predict and foresee, the result is violent swings in the exchange rate that happen quickly and often without warning, as we have seen recently. 

In my last post I did highlight the risk of the EU debt crisis resurfacing, and pointed out that if it did the Euro could weaken and this is exactly what has happened. Given the economic uncertainty in the UK and Eurozone, going forwards rates could move by as much as 8% in either direction in the next few months. So what to do if you need to buy or sell currency? Do it now? Wait in the hope it might improve? 

Ultimately nobody can predict the market and advise you on when to trade. What you can do however, is use my experience and knowledge and have a full discussion with me regarding what you need to do, and the timescales within which you need to do it. I can then explain the different options you can consider, in addition to giving you an outline of what could happen with rates in the coming weeks. 

Armed with the full knowledge of options available to you, and taking advantage of discussing with me may move exchange rates in the coming weeks, you can then make an informed decision on what to do.

Don’t simply sit back and hope the rate will move in your direction. Hope is not a reliable economic tool. 

Get in touch with me today to have your free consultation, and take the first step to making the most of your currency and getting the best exchange rates. I look forward to hearing from you.  

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Pound rises on Mervyn King comments

Friday 15th March 2013 

Good afternoon. Well, we have finally seen a turnaround for Sterling’s fortunes, with exchange rates rising steadily both yesterday and today (Friday). Pound/Euro is back at 1.16 and Pound/Dollar has recovered comfortably above the $1.50 mark. 

In my post today I will explain the reasons why the Pound has gone up against the Euro, and also have a look at next week’s data, as there are some important things happening that will affect exchange rates in the coming days and weeks. 

In today’s report: 

• Mervyn King talks up the Pound 
• Qatar may invest £10bn in the UK 
• Budget to be delivered on 20th March Risks remain to UK economy 
• Next week’s events that may affect exchange rates 

Mervyn King talks up the Pound 

The main reason for the rise in exchange rates is positive comments from the Bank of England governor Mervyn King. Yes you read that right – he actually made positive comments about Sterling! In some of his most upbeat comments since the financial crisis, he said that “there is momentum behind the recovery that’s coming” and that “good progress” has been made towards a new, sustainable economy in the last few years. 

He also retreated from his earlier attempt to talk down the pound, which he has done several times this year already. Having said recently that the 8pc appreciation in sterling “was not a welcome development”; he cheered its recent decline to a two-and-a-half year low and suggested the pound had fallen far enough. “We’re certainly not looking to push sterling down,” he said. “We are moving to a properly valued exchange rate. I think we’re probably there.” 

These comments caused the Pound to rally, pushing back up against most other currencies, which will be a welcome relief for anyone looking to buy currency with the Pound any time soon. The Governor also revealed that he has held discussions with the Chancellor and the Prime Minister about their economic strategy Last week, the Prime Minister hinted that the Bank would get new tools to boost growth in the Budget, saying he backed “monetary activism” and that “the Bank must support the recovery”. 

Sir Mervyn’s comments came despite his recently voting to increase quantitative easing by £25bn to £400bn, and amid weak economic data for the last two months that have rekindled fears of a triple dip recession. 

Do you need the best exchange rates? Contact me now.

So that’s that then, the Pound is now on the way up? 

The currency markets are notoriously volatile, and we often see wild swings in both directions. Putting Mervyn King’s comments to one side for a moment, let’s look at the actual state of the economy in the UK. 

The National Institute of Economic and Social Research (NIESR) said British economic output had contracted between December and February; indicating the economy would struggle to avoid recession. 

Strategists also said minutes from the central bank's Monetary Policy Committee on the likelihood of further quantitative easing (QE), the UK budget on March 20 and data releases were likely to see sterling suffer further losses. 

Markets will remain wary of sterling ahead of the UK budget next week, and of course the latest BoE minutes, both of which we will see on Wednesday. Despite the positive comments, unless Mervyn has some king of crystal ball, I can’t see that much has changed to be honest. Growth is still slow, we may still head back in to recession, and most still thing further QE may happen in the next few months. This then may be a temporary upwards spike, however I expect markets will now await next week’s releases before the GBP/EUR cross makes significant changes in either direction. 

Worried about adverse exchange rate movements? Discuss your requirements with me for free. 

Qatari investment rumours also spur the Pound on 

Add caption

Qatar has begun talks with the UK government to invest up to 10 billion pounds into key infrastructure projects in Britain, the Financial Times reported earlier this week, citing people involved in the negotiations. They reported that officials and ministers from both countries held talks over what schemes the Qataris could invest in and whether a specific fund could be set up for the same. 

This would be a welcome development for the struggling UK economy, and so went some way to helping bolster risk appetite for Sterling. 

Data Next Week that I think could affect exchange rates 

On Tuesday we will see UK inflation data and Retail Sales, which are a good barometer of overall economic activity, and so will be closely watched. 

Wednesday is probably the most important day for Sterling in my opinion. We have the minutes to the recent BoE decision not to pursue any more Quantitative Easing. If this shows 3 or 4 members voted for it, then we may see the Pound weaken as it will increase the chance of QE in April or May. 

Also on Wednesday The Chancellor George Osborne will deliver his 2013 Budget. Speculation is mounting that Chancellor George Osborne may announce a review of the Bank of England's remit and give it more leeway on inflation targeting, so this will be watched closely. I’ll do a full report on 

Thursday regards what effect Wednesday’s data has on exchange rates Thursday will see some EU inflation data, but to be honest I expect markets will still be reacting to Wednesdays BoE minutes and budget. 

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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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Sterling falls (again) after poor Manufacturing Output

Tuesday 12th March 2013 

Good afternoon. I’m afraid to say the Pound has fallen further against both the Euro and US Dollar since my post last week. In today’s column I’ll look at the reasons why rates have fallen further, in addition to what data is being released in the coming days that could further impact the rate. So to summarise what we'll look at today:

• Pound falls after poor Manufacturing Data
• Sterling/Dollar falls after better US jobs data
• What might affect the rate in the coming days
• How to acheive the best possible exchange rates

Sterling falls (again!) after poor Manufacturing Output 

The pound has fallen against the dollar and the euro this morning, after official figures showed UK manufacturing output fell by 1.5% in January from the month before. The drop came after a slight rise in December. This latest news increases the chance of the UK heading into a triple dip recession, and that is why the Pound has fallen further. 

Immediately after the news Pound/Euro rates fell to 1.1370, and Pound/Dollar fell to 1.4840. We have since seen a slight recovery this afternoon, but not by much. 

Meanwhile, the National Institute of Economic and Social Research have said UK economic output contracted between December and February by 0.1%. They have also revised their estimate for the three months to January from flat to a contraction of 0.2%. 

The UK economy contracted in the final three months of 2012, and the UK will be back in recession if economic activity shrinks this quarter. Economists said the manufacturing figures increased the chances of the UK falling back into recession. 

In turn this would mean further Quantitative Easing for the UK, and it’s also likely other rating agencies would downgrade the UK which would push the Pound lower still.

Worried about rates falling further? Send me a free enquiry.

Pound also now well below $1.50 vs. the US Dollar 

Late last week we had the latest non-farm payrolls data from the USA, which looks at the total jobs created excluding the agricultural sector (due to its seasonal nature). The numbers showed 236,000 were created, and the forecast was only 161,000. As the number was so much better than expected, the US Dollar gained strength and became more expensive to purchase, pushing rates lower. 

This combined with the shaky UK and EU economies really do cement the dollar as the safe investment of choice, and so further strength could be likely.

Need the best GBP/USD rates? Contact me now.

What data is out in the next few days that might shift the rate? 

Economic data is released every day, and if it’s better or worse than forecast, it can affect exchange rates quickly and without warning. For more information on how these releases could affect the exchange rate you’re interested in, get in touch with me today. 

So what data is coming in the next 48 hours? Well on Wednesday, we have some inflation data from the EU and also the latest EU Industrial Production figures. Over in the United States we have Trade Balance numbers, and also Retail Sales which are a good overall barometer of economic activity. 

On Thursday we have the Bank of England monthly bulletin, which provides regular commentary on market developments and UK monetary policy operations. Often comments from the BoE can affect the value of the Pound. 

We also have the European Central Bank giving a report that contains a detailed analysis of the prevailing economic situation and the risks to price stability.  

Contact me to find out how this data could affect you.

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

Central Bank decisions and effect on exchange rates

Thursday 7th March 2013 

Good afternoon. In today’s post I will take a look at the actions of the UK and EU central banks, and what effect today’s announcement had on exchange rates. So let’s first look at what the Bank of England did, following by a review of the European Central Banks actions. 

Bank of England decide no more QE, for now.

The Bank of England has kept interest rates at 0.5% and decided not to inject more stimulus into the economy. The decision means the Monetary Policy Committee (MPC) has now kept rates at historic lows for four years.

As you can see from the chart above, the Pound rose as a result of the news, and this is because there was the chance further Quantitative Easing (QE) would be announced to support the economy. This had been partially priced in to the rate, and so when no QE was announced, Sterling rose against the Euro and US Dollar. As we will see shortly though, rates quickly fell back again when the European Central bank announced their decision. 

BoE governor Sir Mervyn King voted to increase the QE programme at the MPC's last meeting. He was among three MPC members who backed a £25bn increase in QE to £400bn, but was outvoted. The poor performance of the economy has prompted calls for the Bank of England to take a more proactive role in encouraging economic growth. 

So although no more QE was announced today, it is likely more stimulus will be announced in the coming months, so the downside pressure on the Pound remains. The gains were short lived today however, as the European Central Bank (ECB) comments strengthened the Euro and caused rates to fall again….. 

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European Central Bank 

The European Central Bank (ECB) has kept Eurozone interest rates unchanged at 0.75% for the eighth month in a row. Rates have remained at the same level since the ECB cut rates from 1% in July last year. 

The ECB's president, Mario Draghi, said they had discussed a rate cut, but the consensus was to leave them as they were. Many analysts do not expect the ECB to alter rates from their current record low until next year at the earliest. 

What was interesting were his comments at the press conference afterwards. Mario Draghi said that the Eurozone’s economy would start to stabilise this year and would pick up in the second half, although downside risks remained. He said growth could return in 2014, although the forecast range was wide, between 0% and 2% growth. "Later in 2013, economic activity should gradually recover, supported by a strengthening of global demand and our accommodative monetary policy stance." 

The comments pleased investors and caused the Euro to strengthen. This pushed rates back down again below €1.15 against the Euro, as the chart shows.

Need the best exchange rates? Click here to send me a free enquiry now.  

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

Will the Bank of England weaken the Pound?

Tuesday 5th March 2013 
Good afternoon. After the volatility seen in exchange rates in recent weeks, this week so far has been relatively calm. The Pound/Euro rate has hovered around the 1.16 mark, with Pound/Dollar rates rising from 1.50 to 1.5120. In this afternoons post I will take a look at what data releases we have had so far this week, and also explain some key information that will come from the Bank of England that could cause exchange rate volatility to continue. 

Pound gains a little on UK Retail Sales data 

This morning figures were released that showed that UK retail sales grew at fastest rate for years in February. UK retail sales grew at their fastest rate in more than three years in February, as the drier weather coaxed shoppers back out onto the High Street. The news gave the Pound a little boost, however the gains were limited given the markets are awaiting some key releases from the Bank of England, which I will expand on a little later in today’s post. 

However the BRC figures contrasted with a recent CBI survey which reported that food stores suffered their worst performance for five years in February, which is why any gains for the Pound were fairly muted. 

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Construction falls in February 

Output in the UK construction sector fell again in February, a survey indicates, as the sector suffered its worst month since October 2009. The Markit/CIPS construction purchasing managers' index fell to 46.8, compared with 48.7 in the previous two months. 

A score under 50 indicates contraction. The last time the index was in positive territory was in October last year. CIPS chief executive David Noble said there was "barely a crumb of comfort" in the figures. The figures re-enforce the fact that the UK economy is struggling at the moment, and this is also reflected in the value of the Pound. 

Key Bank of England releases this week could affect the Pound. 

In recent months, much of Sterling’s weakness can be attributed to the Bank of England. As I’ve already covered on my blog in recent weeks, the BoE have taken every opportunity to weaken the Pound in press conference and comments to the media. They have themselves stated that they wish Sterling to depreciate further. 

Tomorrow morning (Wednesday) at 09:45am we have the BoE governor Mervyn King giving a speech. In the press conference he will give his views as to how the BoE observes the current UK economy and the value of the GBP. His comments may determine a short-term positive or negative trend. I think it’s very likely he will again use this opportunity to warn of downside risks to the UK economy, and so it would be no surprise to see Sterling weaken on his comments. 

Following his speech, at 12:00pm on Thursday the BoE’s rate setting Monetary Policy Committee (MPC) will announce its latest decision on interest rates and Quantitative Easing. While I expect rates to be left on hold, there is a real chance they could extend the QE programme. In the last meeting, 3 of the 9 members including the governor Mervyn King voted to increase the programme. So on Thursday it will only take 2 more members for a majority. 

If further QE is announced, then expect the Pound to fall further. QE effectively floods the market with Sterling effectively devaluing the currency. The last time QE was announced Sterling fell significantly within a few minutes. 

Want the best exchange rates? Send me a free enquiry now. 

What does this mean if you need to buy or sell currency? 

The currency markets have been incredibly volatile recently, and it wouldn’t take much for the exchange rate to change dramatically and without warning. If you are buying Euros, then there is much happening that suggests the Pound could weaken further. You could consider fixing the rate now with a Forward contract to protect against this. One article in the Sunday Times recently suggested rates could fall as low as parity, where you would only receive €1.00 for £1.00. 

For those selling foreign currency back to Sterling, the current weakness in the Pound is good news. While rates may fall further, risking all the gains you have already made for slightly more could cost you dearly. There is still much happening in Europe that could weaken the Euro again, such as GDP figures released for the whole EU area tomorrow. To protect against adverse movements, you can place a Stop Loss order which means if the market moves against you, your currency is converted at a pre-agreed level. In this way you can still take advantage of any gains without risking losing all the movements in your favour over the last 8 weeks. 

Worried about the Pound falling? Make an enquiry to see how you can protect yourself.

Find out more about the rates and service I provide 

I am a senior FX Trader for one of the UK’s leading foreign exchange brokerages, and in addition to the insight I provide on exchange rates, I provide commercial rates of exchange that are significantly better than banks or other financial institutions, sometimes by as much as 5%. 

If you have a requirement for foreign exchange, then I can discuss your requirements in detail. I knowing what you need to do, I can then suggest options you can consider. When you decide to fix a rate, the levels I can source often save my clients thousands of pounds. 

If you need the best exchange rates and wish to discuss the current market conditions, click here to send me a free no obligation enquiry now.