GBP/EUR rises to €1.22 after BoE Inflation report

Wednesday 12th February 2014 
Sterling has gained significant strength today following the Bank of England’s inflation report, and the press conference by Governor Mark Carney that followed. In today’s post I will look at exactly what he said, the effect it had on Sterling exchange rates, and what may happen to currency rates in the coming weeks. 

Pound gains strength on Mark Carney’s BoE speech. 

This morning at 10.30am the Bank of England published its quarterly inflation report, and this was followed by a speech from the BoE governor Mark Carney. You can read a full report on his comments here on the BBC website.

In effect the speech caused the Pound to rise against other currencies by around 1%, pushing GBP/EUR rates to €1.22 and GBP/USD up to $1.6550 – excellent buying levels for both currencies. 

The main reason for the gain was an increase in the UK’s growth forecasts. The Bank revised up its projection for UK growth to 3.4% this year, from a previous projection of 2.8%. This gave Sterling a nice boost and caused exchange rates to rise. You can see from the chart below the effect it has had so far on Sterling/Euro:

So is the Pound likely to go up or down in the coming weeks? 

The Pound will likely remain strong at current levels, so the direction of exchange rates, GBP/EUR in particular, will now rest on what happens in the Eurozone. European growth is quite poor, and there is the chance they may have to cut rates. This could cause the rate to rise further. 

This afternoon at 15:30pm there will be a speech by the ECB president Mario Draghi. If he hints at a rate cut, Pound/Euro may rise higher still. If however he hints rates will remain low for the time being, we could see the spike today retract back to the €1.20’s. 

There is also the persistent strength of sterling which adds to the BoE’s challenges. If the Pound gets much stronger and the Eurozone continues to face problems, it’s going to affect our exports which means any further gains could be limited as the BoE moves to keep in check any significant rise in the Pound. 

Carney also said that interest rates in the UK will remain low for some time to come, adding that while he wouldn’t be a pessimist about the ability to return to (normal) rates, it is well beyond the forecast horizon of the Bank of England. 

What can you do if you need to buy or sell Euros? 

Euro buyers should look at today’s gains and consider that we are less than 1 cent away from a 13 month high. We’ve got to these levels several times in the last few months, and each and every time the rate drops back away within several days. You may wish to fix a rate now to take advantage of the gains. You can do so even if you don’t need your Euros for up to 2 years, by lodging 10% of the total you want to convert, and I can guarantee your rate on the full amount. 

If you are selling Euros and moving them back to Sterling, then today’s events have pushed rates the wrong way for you. I don’t expect the mid-market level to drop below €1.20, and bad news for the Eurozone would cause rates to move further against you. A stop loss order is a good strategy to employ in the current conditions. 

Get in touch to discuss your options. 

How to go about getting the best rates, at the best time 

The first step is to get in touch with me to take advantage of a free consultation over the telephone. I can discuss your particular requirements and timescales, and then let you know the different options you can consider, such as Stop Loss Orders and Forward contracts. You can then make an informed decision on when to fix a rate. 

When you decide to do so, I can provide you a quote to compare with your bank. The rates I can source are up to 5% better than banks usually offer, so you can save a considerable sum by taking advantage of my services. 

Click here to send me a free no obligation enquiry now. 

Alastair Archbold.

Exchange rates fall after BoE Inflation report

Wednesday 13th February 2013 

Good afternoon. In my last post I outlined the fact that Sterling had made a recovery against the Euro. However I’m afraid the recovery was short lived, and the Pound has continued to lose value and rates have fallen. In today’s post I’m going to explain why this has happened, and look at the Pound/Euro trend for the coming months. 

So let's get straight on to why rates have fallen again...

Bank of England weakens the Pound pushing exchange rates lower. 

This morning at 10:30am, the Bank of England (BoE) released it’s latest inflation report, delivered by outgoing governor Mervyn King. A link to the full report is here. This afternoon I will simply run over the effects on exchange rates rather than analyse the full report in detail. 

Recent figures have shown that the economy shrank by 0.3% in the last three months of 2012, fuelling fears that the UK could re-enter recession, defined as two consecutive quarters of contraction. In todays report, Sir Mervyn said: ‘The UK economy is set for a recovery. That is not to say that the road ahead will be smooth. This hasn't been a normal recession and it won't be a normal recovery.’ 

A more recent GDP estimate indicates that there may not be a contraction in the first 3 months of this year. Indeed, the BoE does not expect a triple-dip recession but said GDP was likely to continue at below pre-financial crisis levels for around another two years. 

"Growth is likely to be weak in the near term but further out a continued easing in domestic credit conditions, supported by the Bank's asset purchase programme and the Funding for Lending Scheme, together with the stronger global backdrop, underpin a slow but steady recovery in output," the governor said. 

So why did his comments weaken the Pound? 

The key to why the Pound fell is that the markets see his comments as Sterling negative. Sir Mervyn King said “there are limits to what can be achieved via general monetary stimulus” as he urged the Government to “find ways of boosting overseas demand for our products” and push through “supply reforms” – often associated with tax cuts and deregulation. 

Reading between the lines, what he means by this is we need a weaker Pound in order to make our exports more attractive. There is now the increased chance of further Quantitative Easing. The BoE actually want the Pound to weaken further and their policy moving forwards will likely reflect this. That is the reason the Pound fell so sharply when the report was delivered. 

Also of concern is the fact that the Bank’s update on the state of the economy came as the head of the Government’s Debt Management Office claimed that markets expect the UK to lose its prized AAA sovereign credit rating – this is also weighing on the Pound and knocking exchange rates lower. 

 Sir Mervyn was delivering his penultimate Inflation Report. His last Report will be in May, before he is replaced by Mark Carney as governor in the summer. It will be interesting to see if Mr Carney also pursues the policy of trying to weaken the Pound to encourage an export led recovery. We shall see. There are some interesting charts on the telegraph website which you may find of interest here. 

Click here to find out more about our exchange rates.

So will the Pound keep dropping or recover? 

Nobody can predict which way the markets will move. My personal view is that we could well see more weakness, especially if we do lose our AAA credit rating and/or see more Quantitative Easing from the BoE. So for those needing to buy Euros, you should consider your options now to protect against adverse exchange rate movements. 

Rates for those converting back to Sterling are close to an 18 month high, so if I needed to convert Euros back to Sterling I would be keen to take advantage of the rate while it is favourable. 

In the EU, there is talk of the European Central Bank also trying to weaken the Euro in the same way as our central bank is weakening the Pound. This could cause rates to climb back but there is no way of knowing if this will happen. We are entering the dangerous arena now of a currency war, where central banks race to try and devalue their currencies to make investment into their country more attractive. This makes predicting where exchange rates may move impossible and also makes swings in the rate extremely volatile, such as we have seen over the last few weeks. 

As you can read here, G7 nations have recently agreed not to engage in so called currency wars, however what is said and what actually happens are often very different things.

What to do if you need the best exchange rates. 

I am a senior FX Trader for one of the UK’s leading foreign exchange brokerages. Our rates are up to 5% better than achievable at banks and other financial institutions. It’s not just about better rates though; we offer a free consultation to anyone who needs the best rates. 

We can discuss your requirements, explain what is happening with the market and run over the different options you can consider. In this way you will be able to make an informed decision on when to fix your rate, and you may be surprised how much you can save by taking advantage of the best commercial exchange rates available.

Click here to send me a free enquiry

Pound/Euro rates fall on BoE Inflation report. Forecast.

Wednesday 14th November 2012 

Good afternoon everybody. It’s been quite a mixed week so far in the currency markets, with big swings in the Pound/Euro rate along with other currencies. As the week started, Sterling was at a 6 week high against the Euro, and things were looking very good for Euro buyers. As is often the case with sharp upward spikes however, it was not to last. By Wednesday, a dire report from the Bank of England took the wind out of the Pounds sails, and we saw GBP/EUR rates drop by over a point.

In today’s report I’m going to take a look at what caused the Pound to fall, and what the events in the EU may mean for rates going forward.

Sterling/Euro highs were not to last 

Sterling hit its best rates against the Euro in 6 weeks recently after the Bank of England left interest rates and the size of its bond-buying programme unchanged, as outlined in my last post. The decision had been broadly expected by most analysts after a great run of UK data.

However the gains were not to last, firstly due to a dire report from the Bank of England this morning, and fears over what effect the deepening EU crisis will have on the Pound. Let’s take a look at what the Bank of England governor said and what effect it had on Sterling.

Pound falls after BoE Inflation report 

This morning, Sir Mervyn King gave the latest Bank of England inflation report, and during this he has downgraded the growth forecast and warned the economy will be below pre-financial crisis levels for the next three years as it continues its recent "zig-zag'' pattern. The comments did not bode well for Sterling.

Often when Mervyn gives a speech he talks the Pound down, and today was no exception. He said that the Pound/Dollar rate had gained by 8% and the Pound/Euro rate by 12% in recent times, and that these gains were unsustainable. I think he is worried what effect the strong Pound will have on exports, and so purposefully caused some weakness to try and drive the economy.

In the report he said that the Bank of England expects GDP growth of just 1% in 2013, and also said that inflation would to fall back towards the Government's target of 2% in the latter part of next year.

“There seems a greater risk that the UK economy may be in a period of persistent low growth,” Sir Mervyn said. He added that the outlook for inflation was the main reason why the policymakers decided to stop the purchases of gilts - or quantitative easing - in November. There is a real chance more QE could be on the cards however in December or early next year, so those that need to buy Euros should seriously consider their position now.

EU fears could also affect Pound/Euro rates

Little sign of a recovery in the euro zone any time soon is likely to weigh on the single currency against sterling. Weakness across the board would normally cause GBP/EUR rates to rise, however there are real concerns about whether the UK's economic recovery can be sustained, given a deepening recession in the euro zone which is one of our key trading partner.

If the EU economy continues to struggle, then it’s going to affect the Pound and this could keep rates in check.

The Greek economy is doing very poorly. It shrank 7.2% in the third quarter compared with the same period a year earlier, and has now been in recession since late 2008. They’ve had 2 bailouts from the EU and IMF, and there will probably be more to come.

Eurozone finance ministers will meet next week to discuss releasing the latest 31.5bn euros as they seek agreement on how to make Greece's debt sustainable going into the next decade. In the shadow of all of this, workers across the European Union are staging a series of protests and strikes against rising unemployment and austerity measures. General strikes in Spain and Portugal have halted transport, businesses and schools, and led to clashes between police and protesters in Madrid. Smaller strikes were reported in Greece, Italy and Belgium, and rallies were planned in other countries.

Summary 

Many clients are convinced that the problems in EU will drive rates back towards the 4 years highs of €1.28 we saw in the summer. I don’t agree with this. These were the highest rates for years, and despite much better expected UK data we have failed to get back to them.

Rates have fallen further this week due to fears over the UK economy, so if I needed to buy Euros I would give serious consideration over what to do now. We are still trading comfortably above the 1.20 level, and this time last year rates were as low as 1.13. Holding out for more gains could easily mean you lose out.

A wise strategy in this climate would be to place a Stop Loss order. This is where you can instruct me to purchase your currency should it drop below a pre agreed level. For example, 1.22. You can then take a bit of a gamble on rates recovering, but have a safety net in place should rates fall. This is a good way to approach the current market, as it means you don’t lose out on all the recent gains and can still trade at a reasonable level.

If you're looking for the best exchange rates, or just want to have a chat about the options open to you, then send me a free enquiry by clicking below. There is no cost or obligation involved, and you could be very surprised on how much you can save through the commercial rates I can source for my clients.  
 
Click here to send me a free enquiry

Pound gains against Euro on BoE report

Thursday 9th August 2012
Good morning everybody. So, an interesting week so far since my last post on Monday morning. After steady declines for the Pound/Euro rate, yesterday saw a slight recovery, and it was all to do with the Bank of England (BoE). Today I'll focus on what was said in the BoE's inflation report, and what the forecast is for where Pound/Euro rates may go in the coming weeks and months.

BoE Inflation report gives the Pound a boost

Sterling rose nicely yesterday against the Euro and US Dollar, after the Bank of England governor Mervyn King said cutting interest rates would damage financial institutions and would be partly counterproductive. The Pound had weakened over the last week on expectations that there would be a cut in interest rates. As this now looks less likely in the short term, it has strengthened the Pound and pushed exchange rates up, at least for now. The reason is a higher interest rate is attractive to investors, causing demand for a currency and therefore strength.

He didn’t actually rule out a rate cut, but did say that another quarter point cut was "neither here nor there". He went on to say that "Another quarter point on bank rate is not going to be the difference between having a recovery and not having a recovery." He added that a rate cut would damage some financial institutions and therefore would be "more counter-productive than beneficial".

In response to the comments, Vicky Redwood, chief UK economist of Capital Economics said that "The door is clearly open to more stimulus and we still expect both more quantitative easing and a further interest rate cut in November".

So, his pouring cold water on to the chance of a rate cut in the short term has given the Pound a boost, but it’s still likely more stimulus, and a cut, will come sooner or later. It’s likely that they are simply waiting to see what affect the EU crisis will have on the UK before using the last tools it has in its box to tackle the stagnating economy.

The future of the Pound/Euro rate in the coming months can be viewing in the same way; it all depends how badly the problems in the UK will affect the UK, such as exports.

Also in the quarterly inflation report, they cut their growth forecast to close to zero from about 0.8%. Most publications, the BBC in particular, pounced on this fact and had this as their main headline, saying that is shows that the government spending cuts were not working.

The markets clearly do not agree, as demonstrated with the Pound rising a point against the Euro following the press conference. Both the IMF and the currency markets in general reacting positively to the deficit reduction programme and this is keeping the Pound relatively well supported against other major currencies - for the moment at least.

So what else did he say that was of note?

"The big picture is that output's been flat for two years, and has continually disappointed expectations of a recovery,"

"We are navigating rough waters and storm clouds continue to roll in from the euro area,"

"Unlike the Olympians who have thrilled us over the past fortnight, our economy has not yet reached full fitness."

What I take from this is that the BoE are very cautious on what effect the EU crisis will have on the UK, and I think that is what will drive the Pound/Euro rate in the coming weeks. Later in the year, more QE and a rate cut is likely, so don’t expect rates to shoot back above €1.30 any time soon.

So which way are Pound/Euro rates going?

I am asked this question many, many times each day, and like you I would love to know the answer! If I did I would not be writing this post, I would be on my Sunseeker somewhere in the Med.

What I can do is give you my opinions based on the background information that is in the public domain, and explain what has been moving rates. In this way you can make an informed decision on what is right for you, depending on your particular requirements and attitude to risk.

More problems in the Eurozone could cause further gains in the GBP/EUR rate, but I think in the short to medium term, concerns about UK growth are going to keep the Pound in check. The tug of war between the weakening Euro, and the weakening Pound will continue and this is what will drive rates.

If you need to purchase Euros in the coming months, then if it were me I would consider fixing a rate while there is a spike in your favour. It has been in decline for a few weeks after the recent highs. There is no way to predict where exchange rates will go, however with rates within a few points of their best in 4 years, holding out for even more could prove very costly.

That's what I would do, however I am very risk averse and do not like gambling. Everybody is different however, and should you want to gamble on rates going higher, then talk to me about 'Stop Loss' orders. These allow you to continue aiming for a higher rate, but not leave yourself open to unnecessary losses. Click here to make a free enquiry and find out more about the contracts and rates we offer our clients.

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

Why has Pound fallen against Euro August 2011

Wednesday 10th August 2011

Good morning. Sterling has fallen quite a bit in the last 24 hours, pushed down ahead of today's Bank of England (BoE) inflation report, that may well present a poor assessment of the UK economy. At 08:30am this morning rates are as follows:



• GBP/EUR 1.1312

• GBP/USD 1.6254

• GBP/AUD 1.5691

• GBP/NZD 1.9465

• GBP/CAD 1.5964

• GBP/ZAR 11.579

• GBP/JPY 124.76

• GBP/DKK 8.4263

• GBP/NOK 8.8614

• EUR/USD 1.4366



Sterling down vs Euro and US Dollar



So why has the Pound fallen against the Euro August 2011? It's mostly due to today's BoE inflation report, that is expected to issue a poor assessment of the economy today. This follows data earlier in the week that showed a surprise fall in manufacturing output. This reminded investors of the fragility of the economy as it faces new challenges from global financial turmoil and also the widespread riots in London and other cities.



Today's BoE report will show it's latest growth and inflation forecasts today. Markets will be looking for clues to more Quantitative Easing, and it's this expectation that has hurt the Pound and dragged it down from highs against the Euro seen earlier in the week.



Just a few days ago markets were talking about Sterling being a new safe haven currency, however analysts now realise Sterling's gains are mostly due to the fact it's the best of a bad bunch. With issues in the USA and the EU regards debt, the Pound had gained as other currencies lost out.



However, according to Reuters, in the coming weeks sterling could be "well-placed" for more gains given the concerns about debt problems in the United States and its credit ratings downgrade, as well as the debt crisis in the euro zone. Meanwhile rioting and looting across London and in other cities this week also darkened the outlook for sterling as it pointed towards spreading social unrest.



Today's Data



German inflation figures will be closely watched today, for any hint of a further EU interest rate hike. In the UK we see a confidence report, and there is a Bank of England inflation report, along with a speech by BoE governor Mervyn King. Watch for any comments regards further fiscal stimulus (Quantitative Easing) that may weaken the Pound further.



If you need to buy or sell foreign currency, click below now to send us an enquiry for free. Our exhange rates are up to 5% better than offered by banks. Take the first step to making the most of your currency now.