Why has Pound/Euro dropped back below €1.20?

Thursday 5th December 2013 
In my recent post I outlined the week’s economic data that I thought would affect exchange rates. I had highlighted today (Thursday) as the most important day of the week for Pound/Euro rates, and indeed that has been the case as the recent highs have evaporated and rates are back below €1.20 again. So in today’s report: 

• Why have Pound/Euro rates dropped below €1.20 
• Will rates go back up or drop further?
• Effect of Budget statement on exchange rates 
• Central Bank Decisions from UK and Europe 
• US economy grows faster than thought 

Why have Pound/Euro rates dropped below €1.20? 

Today we saw rates drop from the recent highs of €1.21 down below €1.20 again, and this was due to comments made by the European Central Bank president. 

Before I touch on that, let’s look at the decisions from the Central Banks. 

The Bank of England has kept interest rates at a record low of 0.5%, despite signs that the UK economy is improving. The European Central Bank (ECB) also has kept its benchmark interest rate at a record low of 0.25%, following its surprise cut from 0.5% in November. 

Both these decisions were widely expected, and so had no real effect on exchange rates. What did have an impact however were the comments from the ECB president Mario Draghi in his press conference after the decision. 

ECB president Mario Draghi said the decision to keep the rate at its current level reflected the fact that the Eurozone’s economy remained "subdued". There was speculation he may again hint at cutting deposit rates. He seemed to pour cold water on this idea for the time being and as a result the Euro strengthened and become more expensive to purchase. 

A rate cut had been partially priced in to the value of the Euro, which was why it was so weak and available at €1.21 recently. You can clearly see from the chart the moment the press conference started and the rate dropping to €1.1940.

Will it go back up? Will it drop back down? 

It’s impossible to predict market movements unfortunately so nobody can say. 

€1.20 is a key benchmark level however, so I can’t see it getting back through this level until further economic numbers are released that shed light on the relative economies of the UK and the Eurozone. 

It could move either way in the coming 6 months, so it’s important not to just watch and wait in the hope it will move in the direction you want it to. 

There are tools I provide such as Stop Loss orders, Limit Orders, and Forward contracts. All of these can help you take control of your currency requirement, and help you budget without your currency costing you more than necessary. 

How these work depend on whether you are buying currency, or converting it back to Sterling, but there are various options I can explain to you, which will help you make an informed decision on whether to fix a rate, or hang on in the hope things might get better. Send me a free enquiry and I can get in touch to discuss your specific requirements, and explain the options available to you. 

Effect of Budget statement on exchange rates 

Chancellor George Osborne has updated MPs on the state of the economy and the government's future plans in his Autumn Statement. There were some interesting things I the statement, but nothing that was really a surprise. You can read a full breakdown of the key points here on the BBC website. Today I’ll just run over what I think is important in terms of exchange rates. 

In a nutshell without boring you with all the figures (they can be found at the BBC link above) – growth forecasts have been revised up, and government borrowing has been revised down. This, if it proves to be true, should be good for Sterling in the long term. The news wasn’t much of a surprise however so didn’t really affect rates, and was overshadowed today by the ECB press conference was had a big impact on Pound/Euro rates. 

US economy grows faster than thought pushing GBP/USD lower 

The US economy grew at an annual pace of 3.6% in the third quarter of the year, up from an initial estimate of 2.8%, revised figures have shown. The growth rate was the fastest since the first quarter of 2012. This was much better than expected, and the other US data released today such as the latest unemployment numbers also impressed. 

The net result was a strengthening of the US Dollar, which was compounded further due to weakness in the Euro, and this has caused Pound/Dollar rates to drop from the recent 2 year high. Tomorrow’s Non-Farm Payrolls will be the next main data that I think will affect Pound/US Dollar rates. 

Are you looking for the best exchange rates? 

If you are looking for the best exchange rates, whether it’s buying Euros, converting Euros to Pounds, or indeed exchanging between any of the world’s major currencies, I would certainly suggest getting in touch with me. 

I can discuss your requirement, keep you up to date with which way rates are moving, and help you achieve exchange rates up to 5% better than banks can offer. I have helped thousands of personal and business clients with foreign exchange over the last 8 years. 

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Alastair Archbold

Pound/Euro exchange rate forecast Outlook

Monday 10th December 2012

Good morning. Sterling Euro rates hit a 5 week low last week, before staging a slight recovery on Thursday and Friday. As always for a Monday, today I will take a look at what has moved the rates in the last week, and take a view on what the forecast for Pound/Euro exchange rates moving forwards. 

In today's report:

• Pound/Euro hits 5 week low before recovering on Friday
• Effect of budget statement on exchange rates
• Weakness after ECB speech pulls the rate higher again
• Round up of the week’s other data that may affect rates

Sterling vs. Euro; 

With last week’s Autumn Statement and data releases you would have expected substantial movement on both sides of the channel, and some significant movement for the GBP/EUR cross. Unsurprisingly with the ever so unpredictable currency markets the pair remained range bound with a 1 week movement within 0.65%. This week’s report will look at what has affected the rates and why Sterling seems to have put a stop to the recent decline in rates and strengthening Euro. 

 

So what happened with rates last week?

Markets opened at €1.2331 last Monday with a raft of data from the Euro zone, UK and States; Sterling was seen as the best performer as with a Purchasing Managers Index (PMI) of 49.1 (predicted 48.0). Across the Chanel, the Euro zone scored 46.2 with Greece coming bottom of the pile at 41.8. Albeit positive news for the UK sentiment it didn’t actually affect the rates much as the GBP/EUR cross seemed to be awaiting the Autumn Statement from George Osborne on Wednesday with Interest rate and GDP figures out on Thursday. 

What effect did the Autumn statement have?

The Autumn Statement was announced Wednesday with changes in Income Tax, Tax Relief, Capital Spending and Welfare; with the most worrying aspect being that debt reduction targets were behind schedule. This lack of progress could indicate towards a future downgrade of Britain’s AAA rating which would hinder the UK’s ability to borrow at current levels reducing the value of the pound. This could also mean further Quantitative Easing for the UK, putting Sterling at risk somewhat. 

Euro weakness pushes the rate higher again

There was however some good news for the Pound/Euro rate on Thursday as President Mario Draghi said “economic weakness will persist next year”. The European Central Bank (ECB) cut its growth forecasts and the Euro weakened as the mid-market moved up 0.5% within the space of an hour; further weakness continued through Friday as the Bundesbank slashed the 2013 German Growth Forecast from 1.6% to 0.4%. The Frankfurt based central bank did say it would recover to 1.9% in 2014. 

So from the 5 week low for the GBP/EUR cross, rates could come back up due to the weakness in the Euro zone. Alternatively, we could also see further Quantitative Easing (QE) out of the UK as debt reduction targets are behind schedule, and more stimulus might be required to help and bolster growth in the UK, potentially weakening Sterling. So the tug of war between Sterling and Euro continues, with no clear consensus on which direction things will go in the coming weeks and months. 

So what does this mean if you are looking to fix a rate or make the most out of your funds? 

If you are looking to purchase Euro’s at the moment, yes the rates have come down from the August High of €1.2878, but we're still looking pretty good at the €1.24 level. If you need to buy Euros, it's important to remember that at the end of last year you would have seen the mid-market nearer to €1.13. 

A typical purchase of €200,000 would now cost you over £15,000 less! Certainly if I needed Euros, I'd be happy to trade above €1.24 and would not want to risk losing out more should the UK have it's credit rating downgraded.

If you are looking to sell Euro’s and you are wary of the problems in the Euro zone or you are in the process of signing for a property a Forward Contract is a great tool for securing your price ready for completion. 

A Forward Contract takes the volatility out of the market and means you know exactly where you stand once you have completed either selling or buying a property abroad. 

Another option for Euro sellers is a Stop Loss order. This allows you to continue taking any gains, but should the market move against you, you can place an order to trade at a certain level, limiting any potential loss should the market go against you. 

To find out how Forward contracts operate, along with all the market contracts available to you hy not send me a free enquiry now. I can provide a free consultation on all the options available to you. 

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Weekly Economic Data that may affect exchange rates 

Monday – There is no UK data of note today. There is however a raft of data from the Eurozone including German Trade Balance and wholesale prices, Italian Industrial Output and GDP figures, Greek inflation data and Industrial production, in addition to an EU wide investor confidence Survey. 

Tuesday – Today we have UK House Price Balance from RICS. There is also a bond auction in the UK. In the Eurozone we have the German & EU wide ZEW survey on economic sentiment. Over in the United States we see Trade Balance numbers and wholesale inventories. Further afield, Australia has a consumer confidence survey. 

Wednesday – It’s all about unemployment in the UK today, as we will see the claimant count, unemployment levels and average earnings data. Later in the morning we have a speech by one of the BoE’s MPC members, so this could cause volatility for Sterling. In the Eurozone inflation is the order of the day, with the latest numbers from Germany and France. Over in the USA we will see Imports and Exports, an interest rate decision from the FED, the latest FOMC economic predictions and a budget statement. 

Thursday – Unusually quiet in the UK for a Thursday, with only a CBI industrial trends survey. In the Eurozone we will see inflation data for Spain and Italy, and also Greek unemployment and the ECB monthly report. There is also a European Council meeting which will discuss the debt crisis. In the states we have inflation, Retail Sales & Business inventories. 

Friday – We end the week with Services & Manufacturing PMI from Germany France and the whole EU. Over in the US we have a raft of inflation data in addition to Industrial production. There is nothing of note from the UK.  

Getting the best exchange rates 

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Autumn statement effect on exchange rates

Wednesday 5th December 2012 

Good afternoon. The market has now stabilised after the Autumn statement by the chancellor. In this afternoons post I’m going to have a quick look at the effect of the statement, and also what is coming up in the next few days that could affect exchange rates. 

Effect of Autumn budget statement on exchange rates 

This is an easy one to sum up; there was little to no reaction at all! Sterling had been falling in the run up to the announcements anyway, and this morning was at a 1 month low against the Euro. As is often the case, the currency markets move more on rumour than actual fact, and the Pound was already vulnerable as investors braced for grim tidings from the UK's finance minister in his half-yearly budget statement. This is how GBP/EUR has moved today:

The market has already been anticipating a difficult Autumn Statement and this was for the most part already priced in to rates. Earlier this morning, the pound barely reacted to a survey showing Britain's service sector grew at its slowest pace in almost 2 years. The PMI number was below forecasts, but still just above the magic 50 level, which signals growth, which is probably the reason we saw hardly any movement. 

You can see in the chart above the market was already at its lowest before the speech, and the Pound/Euro rate actually recovered by around 0.3% just before Mr Osborne starting speaking. During the speech we saw basically no movement at all, as there were no surprise announcements. 

You can read a quick guide here as to what the statement contained from the BBC. The only real thing of interest was the scrapping of a planned 3p rise in fuel duty. Also of interest to the currency markets were the growth forecasts which are now predicted to be -0.1% in 2012, down from 0.8% predicted in the Budget. Forecasts for next few years are: 1.2% in 2013, 2% in 2014, 2.3% 2015, 2.7% in 2016 and 2.8% in 2017.

Quantitative Easing announcement tomorrow

Lowered growth forecasts could open the way to more quantitative easing by the Bank of England QE is generally perceived as negative for a currency. But if the fiscal austerity programme is relaxed too much that could also be negative as it would bring the UK's triple-A rating into question. 

The next announcement on QE is tomorrow lunchtime, when the Bank of England will announce whether or not they will increase the measures. We will also see the Bank of England and European Central Bank announce their latest decisions on interest rates. 

I don’t’ expect any surprises on either QE or interest rates. In the run up to Christmas it’s highly unlikely that there will be any changes, but depending on how economic figures are in the next few weeks, we may see more QE in the early part of next year.

• Do you need to buy or sell Euros? 
• Are you looking for the best exchange rates? 
• Would you like to discuss the markets to find out what is happening to help you decide when to fix your rate? 
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