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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